Suppose that U.S. prices rise 4 percent over the next year while prices in Mexico rise 6 percent. According to the purchasing power parity theory of exchange rates, which of the following should happen?
A. The dollar will be worth 1.5 pesos in the foreign exchange market.
B. The peso will be worth 1.5 dollars in the foreign exchange market.
C. The dollar will depreciate.
D. The peso will depreciate.
Answer: D
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If each additional unit of capital increases a firm's yearly output by a smaller amount than the previous unit of capital, and other inputs are held constant, then the firm is experiencing
a. diminishing returns to scale b. negative marginal productivity of capital c. diminishing marginal productivity of capital d. capital depreciation e. diminishing marginal productivity of labor
If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could
a. increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. b. increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. c. decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. d. decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.
______ involves the manipulation of tax and spending decisions to accomplish governmental goals.
A. Economic policy B. Education policy C. Fiscal policy D. Environmental policy
A person works more hours at a higher wage if the substitution effect
a. equals the income effect. b. equals zero. c. is smaller than the income effect. d. is larger than the income effect.