The theory of purchasing power parity:
A. contradicts the law of one price.
B. extends the law of one price to a basket of goods.
C. explains exchange rate movements in the short run, while the law of one price explains exchange rate movements over the long run.
D. assumes away inflation to have any validity.
Answer: B
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Surplus value that is lost due to taxes imposed on imported goods which are keeping the market from functioning as well as it can is called
A) the loss of subsidy. B) the net export deficit. C) rent seeking loss. D) the deadweight loss of a tariff.
Rational expectations are forecasts
a. that, while not necessarily correct, are the best that can be made given the available data. b. that are technically correct. c. that accurately predict the short-term trade-off between inflation and unemployment. d. made by economists using the most sophisticated econometric models.