How does an increase in inflation affect the nominal exchange rate?
What will be an ideal response?
Higher inflation causes a real appreciation. As domestic goods become more expensive relative to foreign goods, net exports decline. Since, in the long run, the nominal exchange rate adjusts to price-level changes, the nominal exchange rate is expected to fall. Moreover, since the real appreciation is contractionary, autonomous monetary easing is possible, which would lower the real interest rate. An expected decrease in the return on domestic assets lowers the expected future exchange rate, which lowers the current demand for domestic assets, so the nominal exchange rate falls.
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A) is a pollution of the external environment. B) is a cost not borne by the producer of the good. C) benefits no one. D) is not associated with resource use. E) is created only when production occurs.
As canals, steamboats, and railroads were built,
a. home production declined. b. manufacturing by artisans increased. c. prices of basic goods like clothing increased. d. product quality declined. e. All of the above.
A rightward shift of a market supply curve might be caused by:
a. the entry of new firms in the industry. b. an increase in the wages of labor employed in the industry. c. an increase in the price of the final product. d. a decrease in the income of consumers. e. an increase in the supply of a substitute good.
If the government wanted a tax to raise a great deal of revenue but not burden producers much, it would want to tax an industry with
a. elastic supply and demand curves. b. inelastic supply and demand curves. c. inelastic supply and elastic demand. d. elastic supply and inelastic demand.