Question

True/False

A way to cool off an inflationary economy is to lower interest rates.

According to the concept of purchasing power parity, exchange rates adjust to different rates of inflation in different countries.

The intentional raising of the value of a currency by a nation's government is called devaluation.

If the money supply increases, its price—in the form of interest rates—also increases.

A common market requires that member nations harmonize their tax, monetary, and fiscal policies, and that they create a common currency.

Answer 1

1. False, because a lower interest rate is a monteary expansion, this will increase money supply and pull prices upwards, creating more inflation than less

2. True, whenever there is an increase in inflation rate in the economy, its currency depriciates to maintain the purchasing power parity between the economies and in the case of decrease in inflation, opposite happens.Thus, exchange rate adjusts itself with respect to the inflation rates.

3.False, devaluation is the intentional fall in tge value of currency by the government.

4.False, this is because an increase in money supply leads to rightward shuft of LM curve, which leads to decrease in interest rate due to simple reason that for the goven money demand, money supply has increased creating a situation of excess supply. This pulls the price of money i.e. interest rate downwards

5.False, a common market means where there is no tarrifs on impors from the other countries or any sought of non-tariff measures against imports.

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