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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