When Analyzing the Complete Model, Which Can Predict Short-Run and Long-Run

question 66

Multiple Choice

When analyzing the complete model, which can predict short-run and long-run changes in the exchange rate, one must:

• A) start with short-run changes and move toward long-run changes, and thereby determine expectations.
• B) use only the long-run model because the short-run model is largely irrelevant.
• C) start with the long-run equilibrium positions where expectations of future exchange rates can be determined and use those expectations to feed into the short-run model.
• D) use the short-run model only, because the long run is only a theoretical concept.

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Definitions:

Short-Run Supply

The total quantity of goods and services that producers are willing and able to sell at current prices in a short-term period, often influenced by fixed production capacities.

Long-Run Supply

The total amount of a product or service that is available to the market from all producers over a long period, when all inputs can be adjusted.

Purely Competitive

An idealized market structure in which there are many buyers and sellers, no barriers to entry or exit, and perfect information, leading to prices being determined by supply and demand.

Market Supply Curve

A graphical representation showing the total quantity of a good that sellers are willing and able to sell at various prices, holding all else constant.