The theory of purchasing power parity:
A. contradicts the law of one price.
B. extends the law of one price to a basket of goods.
C. explains exchange rate movements in the short run, while the law of one price explains exchange rate movements over the long run.
D. assumes away inflation to have any validity.
Answer: B
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The distribution process performed by the price system is not as efficient as the distribution process of central planners.
Answer the following statement true (T) or false (F)
Which of the following contributed to the weak recovery from the 2008-2009 recession?
a. constant policy changes that generated uncertainty and undermined private investment b. the restrictive monetary policy followed by the Fed c. the tax increases instituted by a Congress intent on balancing the budget d. the inability of the federal government to borrow because of the sharply higher interest rates
Under the existing system of partially-flexible exchange rates, a country experiencing what it believes is a long-term balance of payments deficit might be expected to:
A. let its currency lose value. B. buy its own currency in the foreign exchange market. C. sell its own currency in the foreign exchange market. D. let its currency gain value.
If two goods x and y are perfect complements, then if the price of x falls, the entire change in the demand for x is due to the income effect.
Answer the following statement(s) true (T) or false (F)