The theory of adaptive expectations points out that when a shift in aggregate demand occurs, people and businesses will rationally expect its impact on output and employment to be temporary and its impact on the price level to be permanent

Suppose that the 12-month interest rates for the United States and the United Kingdom are 7% and 6% respectively, and E = 2.10 $/£. Given this information, what is the expected exchange rate change over the year?

A) 1% B) 4.2% C) 2.1% D) 2.0%

The natural rate of unemployment has increased in the United States and Europe over the last twenty years. What are things that could account for this?

What will be an ideal response?