The Relationship Between the Exchange Rate and Changes in the Relative

question 86

Multiple Choice

The relationship between the exchange rate and changes in the relative growth rates in national income operates through:

• A) changes in the real exchange rate.
• B) changes in the demand for exports and imports.
• C) variations in the inflation differentials between countries.
• D) changes in interest-rate differentials between countries.

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Definitions:

Long Run

A period of time in economics where all factors of production and costs are variable, allowing for complete adjustment to changes in market conditions.

Fixed Resource

An asset or input whose quantity cannot be altered in the short run for the production of goods and services.

Explicit Costs

Direct, out-of-pocket payments for inputs or resources used by a business, easily identifiable and recorded.

Entrepreneurial Talent

The unique set of skills, insight, and intuition possessed by individuals that enables them to identify and exploit new business opportunities.