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
3.
Most economists believe that prices are
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- Fall '10
- Prof.Man-luiLau
- Economics, Macroeconomics, Inflation, International Trade, United States dollar, real exchange rate
-
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