A random walk model can more accurately predict exchange rates as compared to a sophisticated forecast
A) always.
B) for forecasts up to a year away.
C) for forecasts longer than a year away.
D) never.
E) because of the predictability of exchange rates.
Question 2
Which of the following is NOT a result of a permanent fall in foreign demand on one country's exports under floating exchange rate?
A) The DD curve shifts to the left due to reduction of aggregate demand.
B) The AA curve shifts upwards due to the increased expected long-run exchange rate.
C) a reduction in output by a smaller degree compared to temporary fall in demand
D) depreciation in home country's currency
E) a raised level of unemployment
