Suppose the U.S. inflation rate falls while the inflation rate among the members of the European Monetary Union (EMU) holds constant. Other things equal, what will happen in the balance of payments accounts?
What will be an ideal response?
The lower inflation rate in the U.S. relative to the EMU makes U.S. goods and services a little cheaper, increasing exports and decreasing imports. The current account balance will improve.
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When price elasticity is less than -1, consumer spending increases as price falls.
Answer the following statement true (T) or false (F)
Suppose that the citizens of South Dakota decided to limit imports of citrus fruit from Florida and California on the grounds that climatic differences give those two states an unfair advantage in the production of those products. How would the analysis used to explain international trade apply?
Why does a bank sometimes hold excess reserves?
What will be an ideal response?
If two events are perfectly positively correlated, then
A) diversification is not necessary since there is no risk. B) diversification eliminates all risk. C) diversification does not reduce risk at all. D) diversification only cuts the risk in half.