The principle involved in short-run uncovered interest parity is that home interest rates will be equal to:
A) the world equilibrium real rate of interest.
B) the foreign interest rate minus foreign inflation.
C) the foreign rate of interest plus the expected rate of depreciation of the home currency.
D) the domestic nominal rate of interest plus domestic inflation.
Ans: C) the foreign rate of interest plus the expected rate of depreciation of the home currency.
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Excess capacity is a characteristic of monopolistically competitive firms. What does excess capacity mean?
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