For most macroeconomists A) gross national income and gross ...

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For most macroeconomists
 
  A) gross national income and gross national product are the same.
  B) gross national income exceeds gross national product.
  C) gross national product exceeds gross national product.
  D) it is hard to tell whether gross national income equal gross national product.
  E) gross national product is much more important than gross national income.

Question 2

To answer the following question, please refer to the figure below. Concentrating only at the lower left quadrant, discuss the relationship between the U.S. real money supply and the dollar/euro exchange rate, E/E.
 
  What will be an ideal response?

[peter]

Answer to Question 1

A

Answer to Question 2

The lower left quadrant in the figure described the Purchasing Power Parity (PPP) relationship. The relationship between the U.S. real money supply and the dollar/euro exchange rate, E/E is negative.
is equal to the price level ratio, PUS/ .
In this derivation of the relationship, the following variables are assumed constants: , , and .
So, = /PUS
PUS  
 
Thus, the purchasing power of dollar decreases due to the increase in the price level.
 
i.e., dollar depreciates due to PPP