1-) (Figure: International Capital Flows) Refer to the information in the figure
ID: 1099015 • Letter: 1
Question
1-) (Figure: International Capital Flows) Refer to the information in the figure. At an interest rate of 4%, the quantity of loanable funds supplied by British lenders is ______ the quantity of loanable funds demanded by British borrowers.
A. greater than
B. less than
C. equal to
D. not related to
2-) (Figure: Change in the Demand for U.S. Dollars) Refer to the information in the figure. A flow of capital from Europe to the United States would cause a movement in this foreign exchange market that is best represented by the shift from:
A. D2 to D1
B. E2 to E1
C. D1 to D2
D. E1 to E2
3-) (Figure: Exchange Market Intervention) Refer to panel (a) in the figure. Which of the following approaches could the Genovian government use to raise the value of the geno above its present equilibrium exchange rate and into the target range:
A. use its own currency to buy U.S. dollars
B. shift the demand for genos to the right by raising interest rates in Genovia
C. eliminate the exchange controls that limit the right of Genovian citizens to buy U.S. dollars
D. tighten the exchange controls that limit purchases of U.S. dollars by Genovian citizens
4-) If a country on a fixed exchange rate regime finds its currency falling:
A. it can use foreign exchange reserves to purchase some of its own currency.
B. it can add to its foreign exchange reserves by selling some of its own currency.
C. it cannot use monetary policy to maintain its exchange rate.
D. it will allow its currency rate to fall.
5-) If a country with floating exchange rates uses an expansionary monetary policy:
A. the domestic interest rate falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the effect on the exchange rate is ambiguous.
B. the domestic interest rate increases, demand for the domestic currency increases, supply of the domestic currency decreases, and the exchange rate increases.
C. the domestic interest rate falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases.
D. the domestic interest rate falls, demand for the domestic currency remains unchanged, supply of the domestic currency increases, and the exchange rate decreases.
6-) Adopting a floating exchange rate regime:
A. makes the domestic economy less susceptible to business cycles abroad.
B. limits the use of monetary policy for economic stabilization purposes.
C. makes the domestic economy more susceptible to business cycles abroad.
D. commits the country to maintaining low inflation rates.
Figure: International Capital Flows (a) U.S. (b) U.K. Interest rate Interest rate Supply Supply 5% EA 4 4% 2 EB 8 Demand Demand Quantity of loanable funds Quantity of loanable fundsExplanation / Answer
1) A. greater than
2) C. D1 to D2
3) B. shift the demand for genos to the right by raising interest rates in Genovia
4) A. it can use foreign exchange reserves to purchase some of its own currency.
5) C. the domestic interest rate falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases.
6) A. makes the domestic economy less susceptible to business cycles abroad
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