In each of the following scenarios, explain why the euro will appreciate or depreciate in a system of floating exchange rates. (A) A recession in Germany cuts German purchases of American goods. (B) American investors are attracted by prospects for profit on the Frankfurt Stock Exchange. (C) Interest rates on government bonds rise in the United States but remain stable in Germany.
What will be an ideal response?
(A) The recession leads to a drop in imports. The supply of euros falls, so the price of euros (the exchange rate) rises. The euro appreciates. (B) American investors increase demand for euros in order to buy German stocks. The euro appreciates. (C) Investors supply euros in order to obtain dollars to buy U.S. bonds. The euro will depreciate.
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Prices of industrial products and wages tend to be the most "flexible."
Indicate whether the statement is true or false
In the above figure, the Lorenz curve for income is shown. If the data used are from the United States, and the U.S. Lorenz curve for wealth was added to the diagram, it would be
A) further from the line of equality than the Lorenz curve for income. B) closer to the line of equality than the Lorenz curve for income. C) above the line of equality. D) the same as the Lorenz curve for income.