An increase in the expected rate of inflation would
A) shift the short-run Phillips curve upward.
B) shift the short-run Phillips curve downward.
C) shift the long-run Phillips curve to the right.
D) shift the long-run Phillips curve to the left.
A
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Suppose that the United States and the United Kingdom both use the gold standard. Their prices of gold are $35 = 1 ounce and £7 = 1 ounce, which yields an implied exchange rate of $5 = £1. Now suppose that the exchange rate temporarily rises to $5.50 = £1. What actions would you follow to take advantage of this temporary opportunity for arbitrage?
A) Sell gold for pounds in the United Kingdom, buy dollars with pounds in currency markets, and buy gold with dollars in the United States. B) Sell gold for dollars in the United States, buy pounds with dollars in currency markets, and buy gold with pounds in the United Kingdom. C) Sell gold for dollars in the United States, sell pounds for dollars in currency markets, and buy gold with dollars in the United Kingdom. D) Sell gold for dollars in the United Kingdom, buy pounds with dollars in currency markets, and buy gold with pounds in the United States.
In order to maintain an effective fixed exchange rate that differs from the market rate, the government must have
a. arbitrage capability b. a surplus of merchandise exports c. the ability to persuade other governments to control their exports d. sufficient foreign exchange reserves e. the ability to float high interest rates