In a System of Freely Floating Exchange Rates and Perfect

question 19

Multiple Choice

In a system of freely floating exchange rates and perfect capital mobility, an increase in tariffs on foreign goods will result in

• A)an increase in domestic interest rates in the short run
• B)an increase in the value of the domestic currency in the short run
• C)an increase in the value of the domestic currency in the long run
• D)no change in domestic interest rates or income in the long run
• E)all of the above

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Definitions:

Altruistic Motives

Reasons behind actions that are primarily concerned with the welfare or benefit of others, without personal gain.

Reciprocity

A social norm of responding to a positive action with another positive action, rewarding kind actions.

Empathy

An emotional response to others as if we ourselves were in that person’s situation; feeling pleasure at another’s pleasure or pain at another’s pain.

Responsible

The state or quality of being accountable or to blame for something, often involving obligations to act ethically and sensibly.