Explaining exchange rate behavior in the long run assumes that changes in price levels and real interest rates affect nominal exchange rates so that interest parity and PPP hold. Short-run deviations from PPP may be explained by an alternative theory called the:
a. relative PPP approach.
b. asset approach to exchange rate determination.
c. long-run equilibrium approach.
d. law of one price.
Ans: b. asset approach to exchange rate determination.
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The inflation rate in the U.S. is decelerating because of all the following factors except:
A) lower energy prices B) falling value of the dollar C) commodity super cycle D) the negative output gap
Three years ago Dr. and Mrs. Henderson moved from the house they had owned for 20 years, but did not sell it. They decided to travel and bought a mobile home to live in. They now sell the house. How much of their capital gain on the house will be taxable?
A) 15 percent, depending on their tax bracket B) 28 percent, depending on their tax bracket C) All of it, if it is over $500,000 D) None of it, if it is less than $500,000