Suppose a given basket of goods and services costs 6 dollars in the United States and 4,500 won in Korea. If the exchange rate is 900 won per dollar, purchasing power parity implies that the:
A. dollar must appreciate to restore purchasing power parity.
B. dollar must depreciate to restore purchasing power parity.
C. won must depreciate to restore purchasing power parity.
D. exchange rate has attained its long run equilibrium value.
Answer: B
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Suppose the only leakages are savings and taxes. The tax rate is 0.2 and the multiplier is 1.92. These values imply that the marginal propensity to consume is
A) 0.32. B) 0.60. C) 0.68. D) 0.8.
How can a global savings glut affect the United States?
A) It can reduce the world real interest rate, thus encouraging borrowing by Americans. B) It can increase the world real interest rate, thus encouraging saving by Americans. C) It can reduce the supply of loanable funds for the United States. D) It can reduce the demand for loanable funds for the United States.
A tradesman who purchases diamonds in a country where the price is low and sells them in another country where the price is high, can be said to be practicing:
a. arbitrage. b. speculation. c. derivatives trading. d. forecasting.
Firms often seek to borrow money to expand their capital stock, and the price they pay for the money is the interest rate. What happens to the quantity of money supplied if the interest rate increases?
a. It increases. b. It decreases. c. It does not change. d. It depends entirely on the interest rate.