Suppose Interest Parity Holds

question 10

Multiple Choice

Suppose interest parity holds.There is a change in U.S.policy that leads to expectations of a higher U.S.inflation rate.The increase in expected inflation will cause dollar interest rates to _______.

• A) Stay the same.
• B) Fall.
• C) Rise.
• D) None of the above.

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Definitions:

Function

A relation between a set of inputs and a set of permissible outputs, typically defined by a rule that every input is related to exactly one output.

Production Function

A mathematical model that describes the relationship between inputs used in production and the output generated from those inputs.

Marginal Product

The increase in output that results from a one-unit increase in the input of a particular resource, holding all other inputs constant.

Factor X

A hypothetical or unspecified factor in an equation, model, or situation that has an impact on the outcome but is not explicitly defined.