Explain the effect on the demand for dollars in the foreign exchange market of an increase in the U.S. interest rate differential
What will be an ideal response?
As the U.S. interest rate differential increases, international investors can obtain a greater return by holding U.S. assets. Therefore these investors want to buy more U.S. assets, such as bonds. But in order to buy more U.S. assets, they need more dollars. Hence the increase in the U.S. interest rate differential leads to an increase in the demand for dollars in the foreign exchange market and so the demand curve for U.S. dollars shifts rightward.
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When all other influences on firms' hiring plans remain the same, the
A) lower the real wage rate, the greater is the quantity of labor supplied B) higher the real wage rate, the greater is the quantity of labor demanded. C) lower the real wage rate, the smaller is the quantity of labor demanded. D) lower the real wage rate, the greater is the quantity of labor demanded. E) None of the above answers is correct because firms' hiring decisions depend on how profitable hiring a worker is, which depends on how much added profit the worker can create.
If nuts and bolts are complements, an increase in the price of nuts caused by a change in the supply of nuts will a. increase the number of bolts sold. b. decrease the demand for nuts c. increase the price of bolts
d. decrease the number of bolts sold
What type of relationship does the real interest rate have with respect to Investment spending?
A. No relationship B. constant relationship C. positive relationship D. negative relationship
Taxes are reduced by $10 billion and income increases by $200 billion. The value of the tax multiplier is
A. -20. B. -5. C. -2. D. -0.5.