In each of the following scenarios, explain why the euro will appreciate or depreciate in a system of floating exchange rates. A) A recession in Germany cuts German purchases of American goods. B) American investors are attracted by prospects for profit on the Frankfurt Stock Exchange. C) Interest rates on government bonds rise in the U.S. but remain stable in Germany
A) The recession leads to a drop in imports. The supply of euros falls, so the price of euros (the exchange rate) rises. The euro appreciates. B) American investors increase demand for euros in order to buy German stocks. The euro appreciates. C) Investors supply euros in order to obtain dollars to buy U.S. bonds. The euro will depreciate.
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The exchange rate converts
a. one currency value to another b. labor units to output units c. miles to kilometers d. physical capital units to human capital units e. none of the above
A firm's supply curve is that portion of its average cost curve that lies above their marginal cost curve
a. True b. False
Which of the following will the Federal Reserve do to decrease the money supply?
a. Decrease the salaries of government employees. b. Sell government bonds. c. Buy government bonds. d. Raise taxes. e. Sell corporate bonds.
The central bank is said to monetize the deficit when it
a. prints Federal Reserve notes to satisfy the increased demand for money. b. sells government bonds from its own portfolio of government securities. c. requires member banks to buy the bonds to finance the deficit. d. purchases the bonds that the government issues.