How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)
A) The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined.
B) The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined.
C) The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase.
D) The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase.
Answer: A
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For each of the following statements, define all of the underlined terms. Then, explain why the statement is true or false
a. If a consumer views two goods as perfect substitutes then their optimal choice will be a corner solution. b. The substitution effect from a price increase states that the consumer will always choose a smaller amount of that good to consume. However, the income effect states that consumption can move in either direction. c. Suppose Alf and Bo have convex indifference curves. Alf likes units of "X" more than units of "Y" but Bo likes units of "Y" much more than units of "X." Then, in the optimum, Alf's marginal rate of substitution will be different from Bo's even if they face the same prices. d. All Giffen goods are normal goods, but not all normal goods are Giffen goods. e. Economists assume that preferences are ordinal. This implies that given two utility functions and one is a monotonic transformation of the other, then they represent the same preferences over bundles of goods.
Corporations account for a ____ proportion of the total number U.S. firms but a ____ proportion of sales by U.S. firms.
A. small; small B. small; large C. large; small D. large; large
Which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?
a. A decrease in domestic interest rates b. An increase in foreign interest rates c. Domestic inflation of 10 percent while the nation's trading partners are experiencing stable prices d. Stable domestic prices while the nation's trading partners are experiencing 10 percent inflation
The MR=MC rule
A) applies to price-makers only. B) does not vary by market structure. C) is only true in competitive markets. D) applies to price-makers that have MR=P.