Homework 3 - Econ 716-21 Macroeconomics for Finance Lau Problem Set III Fall 2010 Instructions 1 Answer all questions(4 pages long 2 Please form

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1 Econ 716-21 Macroeconomics for Finance Lau Problem Set III Fall 2010 Instructions: 1. Answer all questions. (4 pages long) 2. Please form study group of up to 3 persons and work on the problem set. 3. Show your formulas and steps clearly. 4. Due date: 11/8/2010 (M) @8am Part I Multiple Choice (7 questions; 3 points each) 1. In a small open economy with perfect capital mobility, if the domestic interest rate were to rise above the world interest rate, then ______ would drive the domestic interest rate back to the level of the world interest rate. A. capital inflow B. capital outflow C. the central bank D. the banking system 2. If purchasing power parity held, if a Big Mac costs $2 in the United States, and if 6 French francs trade for $1 then a Big Mac in Paris should cost A. 3 franc B. 4 francs C. 12 francs D. 8 francs 3. Most economists believe that prices are A. flexible in both the short run and the long run. B. flexible in the short run but many are sticky in the long run. C. flexible in the long run but many are sticky in the short run. D. sticky in both the short run and the long run. 4. If the price level in Japan is 200, and the price level in the US is 10, and it costs 100 Yen to buy 1 USD, then the real exchange rate between the US and Japan (the price of foreign goods in terms of US goods) is ___________.
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This note was uploaded on 11/06/2010 for the course ECON 716-2 taught by Professor Prof.man-luilau during the Fall '10 term at University of San Francisco.

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Homework 3 - Econ 716-21 Macroeconomics for Finance Lau Problem Set III Fall 2010 Instructions 1 Answer all questions(4 pages long 2 Please form

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