The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Suppose that: 1 ) The interest on a one-year bond today is 3%; 2 ) The interest on a one-year bond starting one year from now is expected to be 4% per year; 3 ) The interest on a one-year bond starting two years from now is expected to be 5% per

year; 4 ) The risk premium on a two-year bond is 0.5%; and 5 ) The risk premium on a three-year bond is 1.0%. Use that information to answer the following questions. a) According to the expectations theory, what is the interest rate today on a two-year bond? Show your work. b) According to the expectations theory, what is the interest rate today on a three-year bond? Show your work. c) Plot the yield curve.

Which of the following events create an outward shift of the production possibilities curve?

a. The United States moves resources from the production of goods for domestic production to the production of goods for export. b. Tax reductions reduce the cost and increase the volume of investment in factories, machinery, and research and development. c. There is an exodus of young people to another country where there is more political freedom. d. The unemployment rate falls from 33 percent to 12 percent.