The Balassa-Samuelson Effect Can Be Used to Forecast Changes in Real

question 41

Multiple Choice

The Balassa-Samuelson effect can be used to forecast changes in real exchange rates by considering the speed of ______ and ______.

• A) convergence to equilibrium; trend changes in the equilibrium value
• B) adjustment to trade imbalances; budget deficit reduction
• C) innovation and productivity; the deterioration of the peg
• D) adjustment to imbalances in income levels; educational attainment

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Definitions:

Large Denomination Time Deposits

Time deposits in a bank or financial institution with a large minimum amount of money required, typically over $100,000, and a fixed term.

M2

A measure of the money supply that includes cash, checking deposits, and easily convertible near money, such as savings deposits, small time deposits, and money market mutual funds.

M3

A measure of the money supply that includes M2 plus large time deposits, institutional money market funds, and other larger liquid assets.

Reserve Ratio

The fraction of deposits that banks are required to hold in reserve and not lend out, aimed at controlling the money supply and banking stability.