A fixed exchange rate causes:
A) transaction costs to increase.
B) efficiency to increase only if the economies are integrated.
C) efficiency to increase under all circumstances.
D) volume of trade to decline.
Ans: B) efficiency to increase only if the economies are integrated.
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The ________ relation indicates that the interest differential between investments in two currencies will equal the forward premium or discount between the currencies
A) Fisher equation B) interest rate parity C) purchasing power parity D) term structure of interest rates
Which of the following statements is correct?
a. The CPI can be used to compare dollar figures from different points in time. b. The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate. c. Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation. d. The GDP deflator better reflects the goods and services bought by consumers than does the CPI.