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1) The quantity theory of money states thatA. the money supply divided by the velocity of money equals the price level divided by real outputB. the money supply times the velocity of money equals the price level times real outputC. the money supply times the price level equals real output divided by the velocity of moneyD. the money supply times the price level equals real output times the velocity of money2) Suppose that U.S. prices rise 4% over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates what should happen to the exchange rate between the dollar and the peso?A. The dollar should depreciate.B. The peso should appreciate.C. The peso should depreciate.D. The dollar will be revalued.3) A rise in the domestic interest rate leads to capitalA. outflows and exchange rate appreciationB. outflows and exchange rate depreciationC. inflows and exchange rate depreciationD. inflows and exchange rate appreciation4) A firm under monopolistic competition will earnA. a positive economic profit as it has some monopoly powerB. zero economic profit as it sets P = MCC. zero economic profit as its P = ATCD. a positive economic profit as it sets MC = MR

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