Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real exchange rate and monetary base in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium. Assume the nominal exchange rate
is stated as: (Domestic currency per foreign currency).
a. The real exchange rate rises and monetary base rises.
b. The real exchange rate rises and monetary base falls.
c. The real exchange rate and monetary base fall.
d. The real exchange rate and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.D
You might also like to view...
If Pepsi decided to raise its price, you would expect the price of Coca Cola
A) to fall. B) to raise. C) Their prices should have no relationship because Pepsi and Coca Cola are not related. D) None of the above answers are correct.
A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate
A) increases; decreases B) decreases; decreases C) increases; increases D) decreases; increases
What effect does a stronger dollar have on aggregate supply? Why?
What will be an ideal response?
Phil's filling station gas station operates on a patch on the highway in a patch where there were no gas stations close by. It enjoyed high profits. After a while, Glen's gas another gas station opened up close by. The profits for the first gas station are likely to decrease because
a. it has to lower prices, since its product is now more price elastic b. It has to lower prices since its product is now more price inelastic c. due to the increased availability of substitutes d. both A&C