According to historical data, what is the effect of a sharp change in the current account on the exchange rate (both in the short and long run)?
A) At first, home currency will depreciate as CA balance falls, but over time, currency will begin to depreciate.
B) At first, home currency will appreciate as CA balance falls, but over time, currency will begin to depreciate.
C) At first, home currency will appreciate as CA balance rises, but over time, currency will begin to depreciate.
D) At first, home currency will depreciate as CA balance falls, but over time, currency will begin to appreciate.
E) At first, home currency will appreciate as CA balance falls, but over time, currency will begin to appreciate.
Question 2
If two countries are very different in relative factor abundance, then empirical support for which of the following would less likely?
A) the Factor Price Equalization Theorem
B) the Heckscher-Ohlin Theorem
C) the Law of One Price
D) the Law of Demand
E) the Gravity Theorem
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