Assume that the exchange rate changed from (a) $2/€ to (b) $1.125/€. What are the corresponding exchange rates for the U.S. dollar?
a. (a) €2/$ and (b) €1.125/$.
b. (a) €1.125/$ and (b) €2/$.
c. (a) €0.50/$ and (b) €0.89/$.
d. There is not enough information provided to answer this question.
.C
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What will be an ideal response?
As the dollar appreciates, which of the following is most likely to occur?
a. More Americans will travel abroad. b. American imports will fall. c. More foreigners will visit the United States. d. American firms will reduce their investments abroad.
When a lack of information exists for parties to a deal:
A. it is always worth getting more information before making a decision. B. an exchange will never happen. C. the cost of acquiring information sometimes is prohibitive and not worth it. D. the exchange will always happen anyway, with little chance of maximizing surplus.
One major assumption of the theory of rational expectations is that
A. all firms use rational expectations. B. the economy does not have a self-correction mechanism. C. the economy has a very effective self-correction mechanism. D. all consumers use rational expectations.