Assume that foreign capital flows from a nation increase due to political uncertainly and increased risk. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real exchange rate and monetary base in the context of the Three-Sector-Model? Assume the nominal exchange rate is stated as: (Domestic currency per foreign currency).
a. The
real exchange rate rises and monetary base rises.
b. The real exchange rate falls and monetary base falls.
c. The real exchange rate rises and monetary base falls.
d. The real exchange rate and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should
a. raise its prices during the winter months. b. lower its prices during the summer months. c. operate during the summer but shut down during the winter months. d. operate during all months of the year as long as its profits during the summer exceed its losses during the winter.
If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should
a. go out of business immediately, because no firm should continue to operate if it is losing money; doing so is contrary to the idea of profit maximization. b. go out of business as soon as the summer is over; losses should never be tolerated. c. operate during all months of the year as long as its profits during the summer exceed its losses during the winter. d. shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period.