The figure above illustrates the U.S. foreign exchange market. Illustrate how the exchange rate changes if the expected future exchange rate falls. Does the dollar appreciate or depreciate?
What will be an ideal response?
The fall in the expected future exchange rate decreases the demand for dollars and increases the supply. The demand curve shifts leftward and the supply curve shifts rightward. As shown in the figure, the exchange rate falls so the dollar depreciates.
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When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
The Economic Freedom Index includes which of the following measures of economic freedom within a nation?
A) Levels of economic regulation B) Freedom of pricing C) Stability of monetary policy D) Taxation levels E) All of the above.
Speculators in derivatives markets
A) reduce the efficiency of these markets. B) are acting contrary to U.S. securities laws. C) accept risk transferred to them by hedgers. D) reduce the liquidity of these markets.
If a monopoly discovers that the demand for its output has become more elastic at the original output level, then it will respond by
A) producing more and setting a higher price. B) setting a lower price. C) setting a higher price. D) producing more while leaving price unchanged.