Sophia is an architect and she is trying to decide whether to hire Jacob, a draftsman, to assist with her work. Sophia could hire Jacob at $20 per hour but it would take him three times as long to complete a task as it takes Sophia. Sophia is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true?
a. Sophia should not hire Jacob because it would be faster for her to do the work herself.
b. Sophia should do the drafting work herself because she has the lower opportunity cost.
c. Jacob should be hired at the $20 per hour wage rate.
d. Jacob should be hired, but only if he is paid more than $30 per hour.
C
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Suppose purchasing power parity holds. If in 1997 the price level in the United States is 100, the price level in Japan is 10,000, and the nominal exchange rate is 100 yen per dollar, while in 1998 the price level in Japan rises to 10,500 and the
nominal exchange rate rises to 105, then the price level in the United States in 1998 must be A) 95. B) 100. C) 105. D) 110.25.
Which of the following had resulted from the Smithsonian agreement of 1971?
a. Devaluation of the U.S. dollar b. Dissolution of a fixed exchange rate regime c. Appreciation of the U.S. dollar d. Establishment of an equilibrium exchange rate e. Laissez-faire in the foreign exchange market