Which of the Following Conditions Do NOT Exist in Long-Run

question 125

Multiple Choice

Which of the following conditions do NOT exist in long-run equilibrium?

• A) Domestic nominal interest rates are such that the supply of real balances is equal to demand.
• B) The domestic real return is equal to the foreign real return through the equilibrium exchange rate.
• C) There are no price level or exchange rate changes and therefore the expected future exchange rate is equal to the actual exchange rate.
• D) Domestic nominal interest rates are such that the supply of real balances is greater than demand.

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Definitions:

Bank Balance

The total amount of funds in a bank account at a given moment.

Deposited

Placing money into a financial account or institution for safekeeping or to earn interest.

IRA

Individual Retirement Account, a saving account with tax advantages that individuals can use to save and invest long-term.

Compounded Annually

The process of calculating interest on both the initial principal and the accumulated interest from previous periods once a year.