If China Wanted to Maintain a Fixed Nominal Exchange Rate

question 13

Multiple Choice

If China wanted to maintain a fixed nominal exchange rate to the United States in the long run:

• A) the price level in China would have to move in tandem with the U.S. price level.
• B) Chinese interest rates would have to move in tandem with U.S. interest rates.
• C) the law of one price would have to hold for at least one good.
• D) the Chinese would have to want to buy American goods.
• E) the Chinese would want to sell their financial assets.

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Definitions:

Unearned Revenue

Income received by a business for goods or services yet to be provided, often recorded as a liability on the balance sheet until the revenue is earned.

Accrued Revenue

Income that a company has earned but has not yet received payment for.

Depreciation

The methodical distribution of a physical asset's cost across its lifespan, mirroring its depreciation over time.

Supplies

Items and materials used in the daily operations of a business, often consumable and regularly replaced.