How does an increase in inflation affect the nominal exchange rate?
What will be an ideal response?
Higher inflation causes a real appreciation. As domestic goods become more expensive relative to foreign goods, net exports decline. Since, in the long run, the nominal exchange rate adjusts to price-level changes, the nominal exchange rate is expected to fall. Moreover, since the real appreciation is contractionary, autonomous monetary easing is possible, which would lower the real interest rate. An expected decrease in the return on domestic assets lowers the expected future exchange rate, which lowers the current demand for domestic assets, so the nominal exchange rate falls.
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A price ceiling that sets the price of a good below market equilibrium will cause
a. an increase in quantity demanded of the good. b. a decrease in quantity supplied of the good. c. a shortage of the good. d. all of the above.
U.S. GDP and U.S. GNP are related as follows:
a. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. b. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad. c. GNP = GDP + Value of exported goods - Value of imported goods. d. GNP = GDP - Value of exported goods + Value of imported goods.