A shortage of pounds in U.S. under a flexible exchange rate system results in ( )
A. a depreciation of the pound
B. a depreciation of the dollar
C. an appreciation of the dollar
D. no change in the exchange rate
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The theory postulates that the exchange rate should be equal to the ratio of price levels in the two nations is called( )
A. absolute purchasing power parity
B. relative purchasing power parity
C. law of one price
D. none of the above
If the rate of inflation in the United States is 4% and the rate of inflation in the United Kingdom is 3%, relative purchasing power would predict that( )
A. the pound will appreciate relative to the dollar.
B. the pound will depreciate relative to the dollar.
C. both the dollar and the pound will depreciate due to inflation.
D. both the dollar and the pound will appreciate due to inflation.
If the increase in a nation's money supply grows less rapidly than its GNP, the nation will face a:( )
A. once-and-for-all balance of payments deficit
B. once-and-for-all balance of payments surplus
C. continuous balance of payments deficit
D. continuous balance of payments surplus
The improvement on a nation’s trade deficit resulting from a depreciation of its currency is ( ).
A. reinforced by the induced fall in imports
B. partly neutralized by the induced rise in imports
C. partly neutralized by the induced fall in imports
D. any of the above
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