Suppose that Argentina's dollar-denominated external assets and liabilities are $10 billion and $100 billion, respectively, and its Argentine peso-denominated external assets and liabilities are each 50 billion pesos (P). Suppose further that Argentina fixes its exchange rate at P1 = $US1. What is the dollar value of Argentina's total external wealth?

Suppose that monetary policy becomes more expansionary, and as a result, the future rate of inflation is higher. Will this be good for the stock market?

a. Yes; the inflation will lead to higher wages, and this will be good for both the economy and the stock market. b. No; the inflation will lead to higher nominal interest rates, and this will reduce the present value of the future net earnings derived from stocks. c. Yes; the inflation rate will reduce the long-run rate of unemployment, and this will be good for the stock market. d. No; the expansionary monetary policy will lead to lower real interest rates, and this is generally bad for both the economy and the stock market.

Purchasing power parity theory is a better guide to short-run movements in exchange rates than to long-run movements in exchange rates.

Answer the following statement true (T) or false (F)