Multiple Questions Answers
1) The quantity theory of money states that
A. the money supply divided by the velocity of money equals the price level divided by real output
B. the money supply times the velocity of money equals the price level times real output
C. the money supply times the price level equals real output divided by the velocity of money
D. the money supply times the price level equals real output times the velocity of money
2) Suppose that U.S. prices rise 4% over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates, what should happen to the exchange rate between the dollar and the peso?
A. The dollar should depreciate.
B. The peso should appreciate.
C. The peso should depreciate.
D. The dollar will be revalued.
3) A rise in the domestic interest rate leads to capital
A. outflows and exchange rate appreciation
B. outflows and exchange rate depreciation
C. inflows and exchange rate depreciation
D. inflows and exchange rate appreciation
4) A firm under monopolistic competition will earn
A. a positive economic profit as it has some monopoly power
B. zero economic profit as it sets P = MC
C. zero economic profit as its P = ATC
D. a positive economic profit as it sets MC = MR
