How does the Fed intervene in the foreign exchange market and what the effects are of the Fed's actions?
What will be an ideal response?
The Fed intervenes in the foreign exchange market and changes the value of the exchange rate by buying or selling dollars. If the Fed wants to raise the exchange rate and appreciate the dollar, the Fed will buy dollars. By buying dollars the Fed increases the demand for dollars and raises the exchange rate. If the Fed wants to lower the exchange rate and depreciate the dollar, the Fed will sell dollars. By selling dollars the Fed increases the supply of dollars and lowers the exchange rate.
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What is the Nash equilibrium of this game?
a. Both the vendors price high b. Both the vendors price low c. Vendor A prices high, vendor B prices low d. Vendor B prices high, vendor A prices low
In 2005-2006, the Fed increased interest rates in an attempt to halt inflation. What was the most likely effect of raising interest rates on velocity?
a. It will decrease. b. It will increase. c. It will remain constant. d. Velocity is unrelated to saving accounts.
A vertical merger combines firms ______.
a. that sell similar products b. at different stages of production c. that are in different industries d. into a conglomerate
Hikers frequently claim that livestock grazing in the Wilderness Recreation Areas reduces the satisfaction of their recreational hiking experience. What is the economic explanation for this conflict?
a) Ranchers are insensitive to the recreational use of public lands. b) Grazing cows is a profit-generating activity, but hiking is not. c) Grazing cows create negative externalities that make hiking less pleasant. d) Hikers do not value livestock as much as ranchers.