Tom and Jerry have two tasks to do all day: make dishes and build fences. If Tom spends all day making dishes, he will have make 16 dishes. If he instead devotes his day to building fences, Tom will build 4 fences. If Jerry spends his day making dishes, he will make 14 dishes; if he spends the day building fences, he will build 7 fences. Based on their production possibilities frontiers, Tom and Jerry:
A. can both benefit from trade because absolute advantage exists.
B. cannot benefit from trade because Tom has the absolute advantage in both goods.
C. could both benefit from trade because comparative advantage exists.
D. will not decide to trade because no comparative advantage exists.
Answer: C
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In the foreign exchange market, if the demand for dollars permanently decreases, the Fed can maintain the exchange rate at its old equilibrium level indefinitely by buying dollars
Indicate whether the statement is true or false
Suppose the actual inflation rate is less than the anticipated inflation rate. Given this information, we know with certainty that the real rate of interest
A) is negative. B) is more than the nominal rate of interest. C) equals the nominal rate of interest. D) none of the above (i.e., more information is needed to answer this question).