Which of the following is TRUE in a free market economy with perfect capital mobility?

Question

Quizplus · Accepted Answer

In a free market economy with perfect capital mobility, all of the statements are true. The exchange rate will tend to equalize the cost of buying traded goods at home with the cost of buying the same goods abroad, as well as the interest rate received on a government bond at home and a similar bond abroad. Exchange rates are also influenced by differentials in the inflation rates of different countries and interest rate differentials among countries and the resulting capital flow.

Which of the Following Is TRUE in a Free Market