Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the interest rate in the U.S. if the euro started to appreciate in value and why?
What will be an ideal response?
If the Fed desired to fix the exchange rate between the euro and the dollar and the euro began to appreciate, the Fed would have to sell euros, which means they would be buying dollars. The purchase of dollars would contract the monetary base which, through the money multiplier, could contract the money supply and cause domestic interest rates to increase.
You might also like to view...
Which of the following is true?
a. Items that supply the nation's currency to the foreign exchange market are recorded as credits in the nation's balance of payments accounts. b. Items that create a demand for the nation's currency in the foreign exchange market are recorded as debits in the nation's balance of payments accounts. c. The purchase of a BMW from a German automaker by a U.S. college professor would be recorded as a debit in the U.S. balance of payments accounts. d. Both a. and b. are correct.
Assume that a consumer has a given budget or income of $12, and that she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. Refer to the information given above. What is the slope of the budget
line, if the quantity of apples were measured on the horizontal axis and bananas on the vertical axis? A. -0.5 B. -0.8 C. -1.6 D. -2.0
Regulation that is based upon the cost of providing the good or service is known as
A) rate-of-return regulation. B) cost-of-service regulation. C) social regulation. D) deregulation.
When you see someone trying to "multi-task" despite mounting evidence that multi-tasking is actually inefficient, this illustrates the:
A. Confirmation bias B. Framing effect C. Hindsight bias D. Availability heuristic