Year-to-year movements in real exchange rates between ...

[nautica902]

Year-to-year movements in real exchange rates between industrialized countries like the U.S. and Canada are caused mostly by
 
  A) changes in relative rates of inflation.
  B) changes in relative growth rates of output.
  C) changes in quotas or tariffs.
  D) changes in capital controls.
  E) changes in nominal exchange rates.

Question 2

Explain several implications and characteristics of efficiency wage theories.
 
  What will be an ideal response?

[babybsemail]

Answer to Question 1

E

Answer to Question 2

The efficiency wage theory suggests that firms will pay workers a wage in excess of the workers' reservation wage to minimize quits and to increase productivity. The efficiency wage theory also suggests that nominal wages will be a function of labor market conditions. As the unemployment rate falls, the nominal wage will rise.