Why is it important for economists to determine whether the velocity of money is constant or whether it is influenced by changes in the transactions demand for money?
The nature of velocity is important because there are important policy implications associated with the
answer to this question. If the velocity of money is constant, then increasing the money supply leads only to
higher price levels. On the other hand, if the velocity of money is not constant, then changes in the money
supply can change interest rates, investment, and real GDP.
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Adjustments in ________ take the economy from the short-run equilibrium to the long-run equilibrium
A) imports and exports B) wages and prices C) the multiplier D) interest rates
The total payment to a lender for a one-period simple loan is
A) (P + i)n. B) P + i. C) i(1 + i). D) P(1 + i).
Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected exchange rate in one year is $1.224. If the spot rate is $1.24, then the expected dollar return on euro deposits is:
a. 4% b. 7.1% c. 0.71% d. 0.129%
In a fixed exchange rate regime, which of the following policies could lead to a greater trade deficit and leave aggregate demand constant?
A) Devalue the currency. B) Increase government spending. C) Decrease government spending. D) Decrease government spending and devalue the currency. E) Increase government spending and revalue the currency.