"Following a Shock to the Equilibrium,prices Will Adjust Slowly to the New

question 25

Multiple Choice

"Following a shock to the equilibrium,prices will adjust slowly to the new equilibrium level,whereas exchange rates and interest rates adjust quickly.This causes the spot exchange rate to move too much before returning to the equilibrium level." This idea is called _______.

• A) hyper-exchange rate effect
• B) panic effect
• C) overshooting effect
• D) imperfect equilibrium effect

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Definitions:

Louis XIII

King of France from 1610 to 1643, whose reign saw the strengthening of royal power and the development of Absolutism in France, largely through the efforts of his minister, Cardinal Richelieu.

Mercantilists

Economic theorists and practitioners who advocated for mercantilism, a system promoting government regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers.

Service

Activities performed to satisfy the needs or desires of others, which can range from manual labor to intellectual or artistic output.

State

A politically organized community living under a single system of government; may also refer to the governmental apparatus through which policies are enforced and administered.