Consider two alternative worlds: (i) the world works according the real business cycle model, and the central bank acts to stabilize the price level; (ii) the world works according to the New Keynesian sticky price model, and the central bank acts to
make the output gap zero. Which is correct? A) We would prefer to live in world (ii).
B) We would prefer to live in world (i).
C) The data cannot tell us whether we are living in world (i) or world (ii).
D) in either world, the central bank is irrelevant.
A
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Refer to the scenario above. Which of the following will you choose in order to maximize return?
A) Plan 1 B) Plan 2 C) Plan 3 D) Plan 4
If the dollar interest rate is 10 percent, the euro interest rate is 12 percent, then
A) an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. B) an investor should invest only in euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. C) an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. D) an investor should invest only in dollars. E) an investor should invest only in euros.