If purchasing power parity holds between the U.S. and China:
A. the real exchange rate must be 1.
B. the nominal exchange rate must be 1.
C. the U.S. must no longer have a trade deficit.
D. China must no longer have a trade deficit.
A. the real exchange rate must be 1.
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What is the law of one price?
What will be an ideal response?
Which of the following could increase the supply of dollars in the foreign exchange market?
a. a lower inflation rate in foreign countries than in the U.S. b. lower interest rates in foreign countries than in the U.S. c. higher prices in the United States d. a depreciation of other currencies e. an appreciation of the dollar
Which of the following is not a characteristic of a public good?
a. It requires resources to produce. b. It is not diminished or depreciated as additional people consume the good. c. Its benefits cannot be withheld from anyone. d. It is a free good. e. It generates value (benefits) to more than one person.
Economic models
a. are always based on realistic assumptions. b. usually predict perfectly. c. can never be tested with real world data. d. are used to describe cause-and-effect relationships. e. are too simple to be of much use.