If exchange rates are allowed to fluctuate freely and the US demand for Japanese yen increases which of the following will happen?
a. the US balance of trade deficit will worsen in the long run
b. Americans will have to pay more for Japanese goods
c. It will be more expensive for the Japanese to buy American real estate
d. the dollar will appreciate
e. more Americans will want to travel to Japan
Ans: b. Americans will have to pay more for Japanese goods
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An adverse oil-price shock reduces labor demand. What happens to current employment and the real wage rate?
A) Both employment and the real wage rate would increase. B) Both employment and the real wage rate would decrease. C) Employment would increase and the real wage would decrease. D) Employment would decrease and the real wage would increase.
The rational expectations hypothesis indicates that a monetary policy designed to alter real Gross Domestic Product (GDP) will fail unless
A. changes in the money supply are completely anticipated. B. there are unanticipated changes in the money supply. C. labor unions have long-term contracts. D. wages and prices are flexible.