Explain what the IP curve is and why it is upward sloping
What will be an ideal response?
The IP curve represents the combinations of i and E that maintain the interest parity condition. As i falls, foreign bonds will have a higher expected return. The demand for the dollar will fall causing an immediate depreciation. So, the drop in i causes E to fall. E will fall until all of the drop in i is offset by the expected appreciation of the dollar.
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Which of the following rules affected hedge funds as a result of the Dodd-Frank Act of 2010?
A) Hedge funds have to make detailed disclosure of their asset holdings. B) Large hedge funds must register with the SEC. C) Investors are allowed to make withdrawals after the first week. D) Carried interest is taxed as ordinary income.
Market failure means that
A) the strike organized by unionized employees fails to achieve its goal. B) too many outdated products are offered for sale in the local supermarket. C) there is overallocation or underallocation of resources to certain economic activity. D) an unexpectedly harsh winter shuts down a factory.
Refer to Figure 11.1. Assume aggregate demand is represented by AD1 and full-employment output is $6.0 trillion. The economy confronts a real GDP gap of
A. $.2 trillion. B. $.6 trillion. C. $.4 trillion. D. None of the choices are correct.
When exchange rates are not in alignment, traders see opportunities for ___ , which move the rates ___ equilibrium.
a. speculation; away from b. arbitrage; toward c. investments; away from d. liquidation; toward