Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium
What will be an ideal response?
The foreign exchange market is in equilibrium when deposits of all currencies offer the same expected rate of return. Potential holders of foreign currency deposits view them all as equally desirable assets. If expected rate of return on any currency deposit is higher or lower than the other, there will exist an excess supply or demand for that currency because one will yield a higher return than the other.
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The stimulus package of 2009 had the effect of
A) causing higher rates of inflation to occur. B) giving new foreign aid to help less developed countries. C) significantly raising the debt to GDP ratio. D) reducing the primary government deficit.
Prior to World War II,
a. the growth of real GDP was more stable than has been the case since the war. b. the growth of real GDP was less stable than has been the case since the war. c. unemployment seldom exceeded 4 percent of the labor force. d. double-digit swings in real GDP during a single year were unheard of.