The monetary approach to interest rates assumes that the prices of goods are ________, which implies that a country's currency will ________, when nominal interest rates ________ because of ________ expected future inflation
A) perfectly flexible; depreciate; increase; higher
B) perfectly flexible; appreciate; increase; higher
C) immutable; depreciate; increase; higher
D) immutable; appreciate; decrease; higher
E) absolutely inflexible; depreciate; decrease; higher
A
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Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency
A) should earn the same real rate of return. B) are valued inversely relative to the size of its GDP. C) will equalize nominal interest rates across countries. D) allow one to buy the same amount of goods and services.
The smallest single component of M1 is:
A. demand deposits. B. savings account balances. C. other checkable deposits. D. traveler's checks.
The real-balances effect indicates that:
A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B. a lower price level will decrease the real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.
If nominal wages are downwardly rigid, a countercyclical policy during a recession leads to ________
A) a fall in consumption B) an increase in tax rates C) an increase in employment D) a fall in investment