If the Average Rate of Inflation in the World Rises

question 20

Multiple Choice

If the average rate of inflation in the world rises from 5% to 7%, this will tend to make forward exchange rates move toward

• A) smaller premiums or larger discounts in relation to the dollar
• B) larger premiums or smaller discounts in relation to the dollar
• C) no change on average
• D) can't tell what will happen

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Definitions:

L-shaped

Often used to describe demand or recovery curves that have a rapid decline followed by a period of stagnation.

Utility Function

A mathematical representation of how consumers rank different bundles of goods according to their levels of satisfaction.

Bliss Point

The optimal quantity of consumption where any further increase or decrease would lead to a less preferable situation for the consumer.

Absolute Value

the non-negative value of a number without regard to its sign, essentially the distance of a number from zero on the number line.