Suppose the exchange rates between the United States and Canada are in long-run equilibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between U.S. and Canadian rates of inflation would
A) have no effect on nominal exchange rates.
B) be completely offset by changes in the real exchange rate.
C) be completely offset by changes in the nominal exchange rate.
D) lead to a change in the real purchasing power of each country's currency when it is converted to the other country's currency.
C
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If we allow free trade in a small nation's industry where there is a domestic monopolist, the monopoly firm:
a. gains even more power. b. sees its profits rise. c. becomes a price taker, is not able to charge a higher price, and behaves like a competitive firm. d. is able to charge a higher price.
Suppose the equilibrium price for soft drinks is $1.00. If the current price in the soft drink market is $1.25 each
A) there will be a surplus of soft drinks. B) there will be a shortage of soft drinks. C) the supply curve of soft drinks will shift leftward. D) the demand curve for soft drinks will shift leftward.