"The Big Mac index is The Economist's burger-based measure of whether currencies are over- or undervalued.... [E]xchange rates should eventually adjust to make the price of a basket of goods the same in each country
Our basket contains just one item: the Big Mac hamburger, which is pretty much the same around the world." The Economist, July 28, 2012 Which principle is The Economist relying on when using the Big Mac to value exchange rates? A) interest rate parity
B) market price parity
C) purchasing power parity
D) exchange rate parity
C
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Economic theory shows that the current account deficit is always equal to the capital account surplus. This means that
a. the federal budget must always be in balance. b. when a country exports more goods and services than it imports, it also imports assets equal to the difference. c. current account deficits should be avoided. d. trade deficits tend to be eliminated automatically.
Which of the following is true of the per person income of the West (Western Europe and its offshoots of the United States, Canada, Australia, and New Zealand)
a. It has increased each century and grown steadily since 1500. b. It is now approximately 20 times greater than the figure of 200 years ago. c. It rose steadily between 1000 and 1800, but income growth has slowed during the past 200 years. d. While income per person has increased since 1800, there has been little change in life expectancy and other indicators of quality of life during this time period.
If firms sell less than is expected, actual investment increases because ________, which is counted as investment.
A. the government buys the unsold goods B. households buy the unsold goods are bargain prices C. the unsold goods are distributed to poor households D. the unsold goods are added to inventory
If an industry has constant marginal and average costs, any shift in demand will eventually
A. result in a higher equilibrium price. B. be met by a smaller change in quantity supplied. C. make economic profits zero in the short run. D. be met by an equal change in quantity supplied, and equilibrium price will not change.