Which of the following statements is true about the economy in the long run?
a. Equilibrium output is below potential GDP and the rate of unemployment exceeds the natural rate.
b. Production costs are close to zero in the long run.
c. The rate of unemployment is zero in the long run.
d. The aggregate demand curve plays no role in determining the equilibrium level of real GDP.
e. The aggregate supply curve is a horizontal line.
d
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Suppose that the price of a Big Mac is a good approximation of the price level in the country. A Big Mac costs £2 in London and $3 in New York
a) If purchasing power parity holds, what is the exchange rate between the U.S. dollar and the British pound? b) If the current exchange rate is $1.6 per pound, what is the dollar price of a Big Mac in London? What do you predict will happen to the exchange rate? Explain. c) The exchange rate between the U.S. dollar and the Russian ruble is 30 rubles per dollar. If purchasing power parity holds, what is the price of a Big Mac in Moscow?
Assume the government reduces government spending. What is the first round effect on the components of the balance of payments (assume low international capital mobility and fixed exchange rates; also assume that before the government action all the components were 0)? a. Current international transactions balance and reserves account become positive; net nonreserve international
borrowing/lending balance becomes negative. b. Current international transactions balance becomes positive; net nonreserve international borrowing/lending balance and reserves account become negative. c. Net nonreserve international borrowing/lending balance becomes positive; current international transactions balance and reserves account becomes negative. d. Net nonreserve international borrowing/lending balance and reserves account become positive; current international transactions balance becomes negative. e. Reserves account becomes positive; current international transactions balance and net nonreserve international borrowing/lending balance become negative.