Author Question: The EU currently is a preferential trade agreement with no governmental institutions. Indicate ... (Read 114 times)

chandani · **on:** Jun 30, 2018

The EU currently is a preferential trade agreement with no governmental institutions.

Indicate whether the statement is true or false

Question 2

Empirical studies find that exchange rates are much more variable than inflation differentials. How can we explain this empirical result?

What will be an ideal response?

kalskdjl1212 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

FALSE
Explanation: Indeed, it, more than any other similar agreement, has developed a complete government with three branches.

Answer to Question 2

Financial markets adjust faster than goods market. Therefore, for any exogenous shock or news, we expect exchange rates to change faster than prices. Thus the differential speed of adjustment makes exchange rates much more variable.