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Suppose that a Toyota Camry costs $25,000 in the U.S. and €20,000 in Europe, while the nominal dollar-euro exchange rate is 0.9€/$.
a. Describe how an arbitrageur could profit from this situation (What would they buy? What would they sell?
b. Based on the Law of One Price, what is the equilibrium nominal exchange rate between theU.S. dollar and the euro? What is the equilibrium real exchange rate between the U.S. and Europe?
c. Suppose the price of everything in the U.S. (including a Toyota Camry) increased by 5%. Allelse equal, how would that affect the equilibrium euro price of the U.S. dollar (i.e. - e*(€/$))in the long run (up or down, and by how much)? Explain.
Concerning the research process, the step which involves deciding if the data confirms or refutes the hypothesis is described as what activity? Refer to the methods of social science and the steps in the sociological research process to answer the qu..
An experienced salesman offers his service (help you perfectly price discriminate) for $800. Based on c) and d), do you accept the salesmans offer? Show work, and explain briefly.
Which of the following is an example of adverse selection?
Which of the following are examples of debt overhang? Which examples are likely to lead to a cutback in spending?
Consider an industry in which n firms produce a homogeneous product. Demand for the product is given by p = a − Q, where a is a positive constant and Q is the industry output. Each producer is identical, having a constant marginal cost c. Find the eq..
"When in Rome, do as the Romans do". Would this be a suitable guideline for MNC's (multinational corporations) doing business in developing countries with respect to ethical practices and social responsibility? Discuss.
Compare and contrast the results of the Classical Model and the Keynesian model after an expansionary policy. Keep in mind that the economy is in a recession and not at full employment. Address the following:
Explain what effect a reduction in the U.S. interest rate would have on the exchange rate?
Burger King and Wendy’s are engaging into the following one-shot game: if Burger King advertises and Wendy’s does not, Burger King will make $20 million in profits and Wendy’s will make $6 million. Write the payoff matrix for the above game. Does Bur..
Why is it important to adjust for inflation when comparing nominal quantities at different points in time. What is basic method for adjusting for inflation.
If the interest rate is 6% per year compounded quarterly, how long (number of quarters) does it take earn $100 interest on an initial deposit of $300? Downtown is experiencing an explosive population growth of 18% annually. At the end 2002, the popul..
An increase in the fixed cost of working will ________ labor force participation and ________ hours of work (of those working before and after the increase in the fixed cost of working) A worker is indifferent between job one lasting 4 hours a day, j..
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