Suppose That the Half-Life of Deviations from PPP Is Five

question 56

Multiple Choice

Suppose that the half-life of deviations from PPP is five years (it takes five years for the difference between the actual and equilibrium real exchange rate to narrow by half) and the nontraded share of consumption is 0.50. What will be the annual rate of change of the real exchange rate if a country initially has a 20% gap between its actual and equilibrium real exchange rates and its GDP is growing 5% faster than GDP in the rest of the world?

• A) 70%
• B) 22%
• C) 4.5%
• D) 2.0%

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Definitions:

Union Membership

Involvement in an organized association of workers formed to protect and further their rights and interests in the workplace.

Labor Force

The total number of people, both employed and unemployed, who are actively looking for work in the economy.

Inclusive Union

A labor union that aims to represent all workers within a particular industry or workplace, regardless of job or skill level, focusing on broad inclusivity.

Labor Supply Curve

A visual chart that illustrates the connection between the rate of pay and the amount of labor that workers are prepared to offer.