Author Question: Suppose two countries make a credible commitment to fix their bilateral exchange rate. In such a ... (Read 71 times)

bobbie · **on:** Jun 30, 2018

Suppose two countries make a credible commitment to fix their bilateral exchange rate. In such a situation, we know that

A) the uncovered interest parity condition no longer holds.
B) the real exchange rate must be constant as well.
C) each country can freely allow its interest rate to diverge from that of the other country.
D) the interest rate in the two countries must be equal.
E) neither country will run a trade deficit.

Question 2

In the wage-setting relation, the nominal wage tends to decrease when

A) the price level increases.
B) the unemployment rate decreases.
C) unemployment benefits decrease.
D) the minimum wage increases.
E) all of the above