Differences in Inflation Rates Between Two Countries Can Explain

question 43

Multiple Choice

Differences in inflation rates between two countries can explain

• A)Short-run changes in the exchange rate but not long-run changes
• B)Changes in the real exchange rate over the long run, but not changes in the nominal exchange rate
• C)Long-run changes in the exchange rate but not short-run changes
• D)Changes in the exchange rate in both the short run and the long run

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Definitions:

Increasing-cost Industry

An industry in which the costs of production increase as the industry expands, often due to limitations in resources or factors of production.

Long-run Supply Curve

A graphical representation showing the relationship between price and quantity supplied over a longer period, when all inputs can be varied.

Perfectly Elastic

Describes a situation in which the quantity demanded or supplied changes by an infinite amount in response to any price change, depicted as a horizontal line on a graph.

Long-run Equilibrium

A state in which all factors of production are variable, leading to a situation where firms only earn normal profits and no incentives exist for entering or exiting the industry.