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If: 1) Prices are fixed in the short run but flexible in the long run 2) Domestic output is always fixed at Y Then, the domestic currency over-depreciates in the short run relative to its long run value if: A. There is a one time permanent (and unanticipated) increase in domestic money supply B. There is a one time permanent (and unanticipated) decrease in aggregate money demand (for any R_$ and Y) due to a change in preferences C. Both A and B D. There is a one time permanent (and unanticipated) increase in aggregate money demand (for any R_$ and Y) due to a change in preferences Both A and D E.

If: 1) Prices are fixed in the short run but flexible in the long run 2) Domestic output is always fixed at Y Then, the domestic currency over-depreciates in the short run relative to its long run value if: A. There is a one time permanent (and unanticipated) increase in domestic money supply B. There is a one time permanent (and unanticipated) decrease in aggregate money demand (for any R_$ and Y) due to a change in preferences C. Both A and B D. There is a one time permanent (and unanticipated) increase in aggregate money demand (for any R_$ and Y) due to a change in preferences Both A and D E.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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If: 1) Prices are fixed in the short run but flexible in the long run 2) Domestic output is always fixed at Y Then, the domestic currency over-depreciates in the short run relative to its long run value if: A. There is a one time permanent (and unanticipated) increase in domestic money supply B. There is a one time permanent (and unanticipated) decrease in aggregate money demand (for any R_$ and Y) due to a change in preferences C. Both A and B D. There is a one time permanent (and unanticipated) increase in aggregate money demand (for any R_$ and Y) due to a change in preferences E. Both A and D If relative PPP holds: A. Real exchange rate may be expected to change in the future B. The expected rate of inflation is the same in Australia and Europe C. Absolute PPP definitely holds D. The real interest in Australia and Europe is the same E. None of the above
Transcribed Image Text:If: 1) Prices are fixed in the short run but flexible in the long run 2) Domestic output is always fixed at Y Then, the domestic currency over-depreciates in the short run relative to its long run value if: A. There is a one time permanent (and unanticipated) increase in domestic money supply B. There is a one time permanent (and unanticipated) decrease in aggregate money demand (for any R_$ and Y) due to a change in preferences C. Both A and B D. There is a one time permanent (and unanticipated) increase in aggregate money demand (for any R_$ and Y) due to a change in preferences E. Both A and D If relative PPP holds: A. Real exchange rate may be expected to change in the future B. The expected rate of inflation is the same in Australia and Europe C. Absolute PPP definitely holds D. The real interest in Australia and Europe is the same E. None of the above
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