Suppose the government of South Island has fixed the value of its currency, the
ID: 1092206 • Letter: S
Question
Suppose the government of South Island has fixed the value of its currency, the Islandia, at $0.50 per Islandia, but the market equilibrium value of the Islandia is $0.75 per New Peso. In order to maintain the official value of the Islandia the Central Bank of South Island must either _________ domestic interest rates or supply Islandia, which causes the supply of international reserves to _________.
a. raise, increase
b. raise; decrease
c. raise, remain unchanged
d lower, increase
E. lower, decrease
Explanation / Answer
Question 17
Suppose the government of South Island has fixed the value of its currency, the Islandia, at $0.50 per Islandia, but the market equilibrium value of the Islandia is $0.25 per New Peso. In order to maintain the official value of the Islandia the Central Bank of South Island must either _____ domestic interest rates or purchase Islandia, which causes the supply of international reserves to ______.
Answer
raise; increase
raise; decrease
raise; remain unchanged
lower; increase
lower; decrease
1 points
Question 18
Financial intermediaries, such as commercial banks, help borrowers, particularly small borrowers, by:
Answer
providing information to evaluate potential lenders.
offering tax preferred borrowing opportunities.
eliminating the risk of borrowing.
providing credit that might otherwise not be available.
evaluating the riskiness of stocks.
1 points
Financial intermediaries, such as commercial banks, help borrowers, particularly small borrowers, byproviding credit that might otherwise not be available.
Question 19
In an open economy, domestic investment equals:
Answer
net capital inflows.
net capital outflows.
domestic saving.
domestic saving plus net capital inflows.
domestic saving plus net capital outflows.
1 points
In an open economy, domestic investment equalsdomestic saving plus net capital inflows.
Question 20
A currency depreciation is a(n):
Answer
increase in the value of a currency relative to other currencies.
decrease in the value of a currency relative to other currencies.
reduction in the official value of a currency in a fixed-exchange-rate system.
increase in the official value of a currency in a fixed-exchange-rate system.
exchange rate officially fixed at a value exceeding its fundamental value.
1 points
Devaluation
raise; increase
raise; decrease
raise; remain unchanged
lower; increase
lower; decrease
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