1) Why do we tend to observe a positive relationship between the inflation

differential and exchange rate depreciation between two economies

Select one:

O a. Because the money supply will adjust

O b. Because the UIP condition holds in the short-run

O c. Because we assume the domestic and foreign price levels are fixed

O d. Because we assume PPP holds and foreign prices are fixed

2) An increase in which of these variables will tend to increase money

demand

Select one:

o a. An increase in taxes

o b. The domestic nominal interest rate

• c. The foreign price level
• d. Transaction cost of obtaining money

3) When calculating GDP, double counting can be a problem when

a. The expenditure approach is used O b. Only production inputs are included

O c. Changes in prices are not adjusted for inflation

d. Sales of intermediate goods are counted in GDP