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 quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns
to complete equilibrium.
a. The quantity of real loanable funds per time period rises and nominal value of the domestic currency remains the same.
b. The quantity of real loanable funds per time period falls and nominal value of the domestic currency remains the same.
c. The quantity of real loanable funds per time period and nominal value of the domestic currency remain the same.
d. The quantity of real loanable funds per time period rises and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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If the price elasticity of demand for a good is 2, then a 10 percent increase in the price of that good ________ the quantity demanded by ________ percent
A) increases; 20 B) decreases; 2 C) decreases; 10 D) decreases; 20 E) increases; 8
Speculation would involve using forward contracts and options to reduce the exchange rate risk on future foreign exchange transactions
Indicate whether the statement is true or false
Why is monetary policy more effective in an open economy than in a closed economy?
A. Trade deficits affect exchange rates, which can offset adverse interest rate effects. B. Borrowers can choose to use foreign capital, so that interest rate effects are stronger than expected. C. Interest rate changes affect exchange rates, so that capital flows reinforce the effect of monetary policy. D. Banks can choose to lend to foreigners, so that interest rate effects are essentially nullified.
Politicians often argue for tariff increases in order to reduce the nation's dependence on imports. If tariffs are increased, the long-run effect is most likely to be:
A. an increase in American imports, and a decrease in American exports. B. an decrease in American imports, and an increase in American exports. C. an increase in both American imports and exports. D. a decrease in both American imports and exports.