Assume a one year U.S. bond pays 4.0% interest and a similar U.K. bond pays 5.2% interest. Which of the following changes will establish interest rate parity?
a. The British pound would be expected to appreciate by 1.2% against the U.S. dollar.
b. The U.S. dollar would be expected to depreciate by 1.2% against the British pound.
c. The British pound would be expected to depreciate by 1.2% against the U.S. dollar.
d. The British pound would be expected to appreciate by 9.2% against the U.S. dollar.
e. The U.S. dollar would be expected to appreciate by 9.2% against the British pound.
c
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A permanent reduction in inflation would
a. permanently reduce menu costs and permanently lower unemployment. b. permanently reduce menu costs and temporarily raise unemployment. c. temporarily reduce menu costs and temporarily lower unemployment. d. temporarily reduce menu costs and temporarily raise unemployment.
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is
A) 12.5. B) 80. C) 125. D) 800.