Holding all else constant, an increase in the real interest rate on U.S. assets will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.
A. increase; decrease
B. decrease; decrease
C. increase; increase
D. decrease; increase
Answer: C
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As we approached the end of the millennium, many economic crackpots advised citizens to hold large quantities of cash in anticipation of Y2K disasters. What effect would this have had on velocity if many people had been foolish enough to follow this advice?
a. It would have decreased. b. It would have increased. c. It would have remained constant. d. Velocity is unrelated to cash balances.
Which of the following is a danger of inflation?
a. Price changes can affect the people who sign long-term contracts. b. Rapid price changes reduce uncertainty. c. Anticipated inflation may be greater than unanticipated inflation. d. High rates of inflation will reduce interest rates.
Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good. b. demand shifts only slightly when the price of the good changes. c. the quantity demanded changes only slightly when the price of the good changes. d. the price of the good responds only slightly to changes in demand.
Economists expect the relationship between consumption and disposable income to be
A. unpredictable. B. transitory. C. fixed. D. inverse E. stable.