Assume that the central bank sells government securities in the open market. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real exchange rate and monetary base in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium. Assume the nominal exchange rate is stated
as: (Foreign currency/ Domestic currency).
a. The real exchange rate rises and monetary base rises.
b. The real exchange rate rises and monetary base falls.
c. The real exchange rate and monetary base fall.
d. The real exchange rate and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.D
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Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates that
A) it is progressively more expensive to produce orchids. B) the tradeoff between roses and orchids is constant. C) Vidalia has a comparative disadvantage in the production of roses. D) Vidalia has a comparative advantage in the production of orchids.
One should expect the forward exchange market to flourish
A) under a fixed exchange rate regime. B) under a flexible exchange rate regime. C) under neither fixed nor flexible exchange rate regimes. D) under both fixed and flexible exchange rate regimes. E) only under a gold standard.
List the major non-price determinants of supply
What will be an ideal response?
Answer the following statements true (T) or false (F)
1. The members of the Board of Governors of the Federal Reserve System are appointed by the U.S. president. 2. Members of the Board of Governors are appointed for five-year terms. 3. All members of the Board of Governors are members of the Fed’s Open Market Committee. 4. Each Federal Reserve Bank can issue Federal Reserve notes. 5. Each District Reserve Bank has branch banks.