Classical economic theory predicted that in the long run the economy would experience:
A. below full unemployment.
B. rising rate of inflation.
C. full employment.
D. idle factors of production.
Answer: C
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If all countries produce the same good (or the same set of goods) and goods are freely traded among countries, so that the real exchange rate equals one, then the relationship between domestic and foreign prices and the nominal exchange rate is
A. P = enom / PFor. B. P = PFor. C. enom = P × PFor. D. P = PFor / enom.
When a country has a current account deficit, the country
A) is borrowing from abroad. B) is lending abroad. C) must have a government budget surplus. D) must have a government budget deficit.
If the natural unemployment rate is 5.5 percent, then the economy is at long-run equilibrium when the actual unemployment rate is
A) more than 5.5 percent. B) between 0 and 5.5 percent. C) 0 percent. D) 5.5 percent. E) none of the above
If the exchange rate moves from 10 Mexican pesos per U.S. dollar to 12 Mexican pesos per U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.
A. appreciated; appreciated B. depreciated; depreciated C. depreciated; appreciated D. appreciated; depreciated