If the domestic prices for traded goods rises 5 in Japan and rises 7 the US over the same period, what would happened to the Yen/US dollar exchange rate? HINT: S1/S0 = (1+h) / (1+ f) where S0 is the direct quote of the yen at time 0, the current period.
a. The direct quote of the yen (/) rises, and the value of the dollar falls.
b. The direct quote of the yen (/) falls, and the value of the dollar rises.
c. The direct quote of the yen would remain the same.
d. Purchasing power parity does not apply to inflation rates.
e. Both a and d.
Question 2
Adam Smith's pin factory and Henry Ford's automobile assembly line are examples of
a. Product lines
b. Functionally organized firms
c. Inefficient processes
d. In-line production
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