Indicate whether each of the following events would lead to depreciation or appreciation of the U.S. dollar under a system of floating exchange rates. a. A drop in U.S. interest rates relative to foreign interest rates b. An increase in the preferences of foreign citizens for U.S. goods c. Faster economic growth in the United States relative to its trading partners d. A decrease in the U.S. money supply e. Rising U.S. inflation relative to foreign inflation
What will be an ideal response?
a. Depreciation of the dollar as foreign demand for dollars falls
b. Appreciation of the dollar as foreign demand for dollars rises
c. Depreciation of the dollar as U.S. demand for foreign currency rises
d. Appreciation of the dollar as rising interest rates increase foreign demand for dollars
e. Depreciation of the dollar as U.S. import demand rises and demand for U.S. export falls
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A tariff makes the total economy
A) better off because it increases the domestic production of the good. B) better off because it decreases the deadweight loss from international trade. C) worse off because it creates a deadweight loss. D) worse off because it creates revenue for the government. E) worse off because it decreases both domestic consumer surplus and domestic producer surplus.
The bias in the CPI typically
A) overstates inflation. B) understates inflation. C) about half the time overstates and about half the time understates the inflation rate. D) cannot be measured or estimated.