As long as trade across borders is unrestricted and exchange rates adjust freely, the purchasing power parity theory predicts that the exchange rate between two national currencies will adjust in the
a. short run because of the actions of arbitrageurs
b. long run to reflect differences in the nations' price levels
c. long run to reflect changes in the governments' trade policies
d. short run because of the actions of speculators
e. long run to reflect differences in military power
QUESTION 2Managers experience bounded rationality when they focus narrowly on maximizing their firm's profits and ignore the broader perspective of society's preferences.
a. True
b. False
QUESTION 3If interest rates fall in country A, other things constant,
a. demand for that country's currency will fall and the currency will depreciate
b. demand for that country's currency will fall and the currency will appreciate
c. demand for that country's currency will rise and the currency will depreciate
d. demand for that country's currency will rise and the currency will appreciate
e. people in country B will pull money out of country A
QUESTION 4When a firm is no longer able to reduce its long-run average cost by expanding, it has achieved its minimum efficient scale of production.
a. True
b. False
QUESTION 5Under a flexible exchange rate system, which one of the following would not directly affect the exchange rate?
a. a change in income
b. the relative inflation rates in two countries
c. the salary of the president of the United States
d. a change in capital flows
e. a change in the level of exports or imports
QUESTION 6One reason a computer manufacturer may produce its own microchips rather than buy them is that it can maintain control over production quality.
a. True
b. False
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