Suppose a basket of internationally traded goods that sells for 10,000 in the United States sells for 8,000 in the euro zone. According to purchasing power parity theory, the equilibrium exchange rate should be
a. 2.50 per euro
b. 1.50 per euro
c. 1.25 per euro
d. 1.00 per euro
e. .50 per euro
QUESTION 2The winner's curse is more likely when the value of a good at auction is uncertain.
a. True
b. False
QUESTION 3In a fixed exchange rate system, rates are maintained by the central bank's ongoing purchases and sales of currencies.
a. True
b. False
QUESTION 4Which of the following would lead a utility-maximizing consumer to search for additional information?
a. an increase in income
b. an increase in the marginal cost of information
c. improved technology (e.g., Internet search programs)
d. a reduction in the dispersion of prices
e. an increase in the consumer's wage rate
QUESTION 5Todays international exchange rate system operates on the gold standard.
a. True
b. False
QUESTION 6It doesn't hurt to get more information . . . is good advice
a. especially when the opportunity cost of acquiring the information is high
b. when information is less than perfect
c. only if the marginal benefit of information is greater than the marginal cost of information
d. only if the marginal benefit of information is equal to the marginal cost of information
e. only if the marginal benefit of information is less than the marginal cost of information
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