Under a fixed exchange rate system, if the inflation rate in the United States is 0 percent a year and the inflation rate in Australia is 5 percent a year, then the U.S. real exchange rate will

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

A) The supply of dollars will decrease. B) The demand for dollars will decrease. C) The demand for dollars will increase. D) The dollar will decrease in value.

If an economy is operating inefficiently, then

a. the economy can increase production of consumption goods without reducing capital goods. b. there is always a positive opportunity cost to increasing output. c. output can only be increased through capital investment. d. output cannot be increased.