Define the following terms and explain their importance to the study of macroeconomics.
a. Exchange rate
b. Depreciation
c. Devaluation
d. Fixed exchange rates
What will be an ideal response?
a. The exchange rate states the price, in terms of one currency, at which another currency can be bought.b. A currency is said to depreciate when exchange rates change so that a unit of the currency buys fewer units of a foreign currency. If one currency depreciates, at least one other must appreciate.c. Devaluation is the official reduction of the exchange rate of a currency. Devaluation can occur only in a fixed exchange rate system.d. Fixed exchange rates are rates set by government decision and maintained by government policies. Fixed exchange rates are often marked by crises generated by persistent balance of payments imbalances.
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Which of the following helps explain how the multiplier and crowding-out effect impact the size of the shift in aggregate demand from a tax change
a. Tax cuts stimulate consumer spending, earnings and profits rise, which further stimulates consumer spending—the multiplier effect. b. The higher income leads to an increase in the demand for money, which tends to lead to higher interest rates. c. The higher interest rates make borrowing more costly and reduce investment spending—the crowding-out effect. d. All of the above
High interest rates
A. increase the profitability of capital investments. B. decrease the opportunity costs of capital investments. C. increase the opportunity costs of capital investments. D. decrease the profitability of current sales.
If the Fed wishes to reduce nominal interest rates, it must engage in an open market ________ of bonds that ________ the money supply.
A. purchase; decreases B. sale; decreases C. purchase; increases D. sale; increases
Which of the following is NOT a problem caused by black markets?
A) Legally banned goods are traded in black markets. B) Black markets pose a threat to legitimate businesses. C) Black markets lead to an inefficient use of society's resources. D) Black markets lead to a fall in the demand for goods.