1) If the Brazilian demand for American exports rises at the same time that U.S. productivity rises relative to Brazilian productivity, then, in the long run, ________, everything else held constant.
A) the Brazilian real will appreciate relative to the U.S. dollar
B) the Brazilian real will depreciate relative to the U.S. dollar
C) the Brazilian real will either appreciate, depreciate, or remain constant relative to the U.S. dollar
D) there is no effect on the Brazilian real relative to the U.S. dollar
2) Explain the law of one price and the theory of purchasing power parity. Why doesn"t purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?