1. Suppose the law of one price does not hold between Japan and China because the Yuan (Chinese currency) price of a digital camera sold in Japan is higher than the price of the same camera sold in China. If we assume that there are no transportation costs or barriers to trade between the two countries, then:
a. the Japanese traders will want to sell cameras in China.
b. the Japanese will want to buy cameras from China.
c. the Chinese will want to buy cameras from Japan.
d. the price of cameras in Japan will increase.
e. the price of cameras in China will fall.
2. _____ has been shown to be the major potential problem faced by countries with floating exchange rates.
a. Deflation
b. Stagflation
c. Inflation
d. Cyclical unemployment
e. Balance of payment surplus