Assuming That Current Currencies Are Currently in Equilibrium and the Exchange

question 95

Multiple Choice

Assuming that current currencies are currently in equilibrium and the exchange rate is €/$ = 0.721 and that the U.S.expects inflation over the next year to be 4% while in Europe there is an expectation of 2.3%; what must the exchange rate be in one year? (€/$)

• A) 0.709
• B) 0.750
• C) 0.738
• D) 0.705

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Definitions:

Free Riders

Individuals who benefit from resources, goods, or services without paying for them, relying on others to bear the cost.

Private Firm

A business owned by private individuals or groups, not controlled by the government, and operated for profit.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they are accessible to all and one person's use does not diminish another's.

Nonexcludable

Describes a good or service for which it is not possible to prevent people who have not paid from consuming or using it, such as public parks or street lighting.