Consider the following simplified sequence of exchanges. A farmer sells wheat to a miller, for 25 cents. The miller grinds the wheat into flour, and sells that to a baker, for 35 cents
The baker turns the flour into a loaf of bread, which she sells to a grocer for 60 cents. The grocer then sells you the loaf of bread for 85 cents. What can we conclude? A) Your purchase of the bread avoided the use of a middleman.
B) The grocer's profit means you lost on the deal.
C) GDP increases by 25 cents.
D) GDP increases by 85 cents.
E) GDP increases by $2.05.
D
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The economic system of the United States
A) was designed by mercantilists and capitalists. B) was designed by the framers of the U.S. constitution. C) was designed to maximize individual freedom. D) was designed to maximize output per capita. E) was the result of human intentions but not anyone's design.
A small open economy
A) is unable to affect the world real interest rate by its borrowing and lending decisions. B) will always be a net borrower from abroad. C) will always be a net lender abroad. D) is almost never able to borrow abroad.
In the long run, a year-long drought that destroys most of the summer's wheat crops causes permanently:
A. higher prices. B. lower prices. C. lower output. D. None of these is true.
Suppose the interest parity condition holds and that the domestic interest rate is less than the foreign interest rate. What does this imply about the current versus future expected exchange rate? Explain
What will be an ideal response?