Question

13. An economy with extremely low interest rates that cannot be stimulated by further accommodative monetary policy is said to be: (a) in hyperinflation; (b) in a liquidity trap; (c) in equilibrium; (d) suffering from halitosis.

14. Which of the following is the best definition of an “economic expansion?” (a) growth in current dollar GDP over at least two consecutive quarters; (b) a period of sustained, accelerating gains in employment; (c) growth in real economic activity to a level greater than the peak of the previous business cycle; (d) a system characterized by an elastic monetary system.

15. If the U.S. dollar appreciates against the Japanese yen, we can expect: (a) an increase in the total cost of Japanese exports into the U.S.; (b) less U.S. import inflation; (c) stronger U.S. demand for the goods of, say, South Korea; (d) decreased purchases of Japanese stocks by U.S. investors.

16. Which of the following is most likely to be a “reserve currency?” (a) Canadian dollar; (b) Mexican peso; (c) U.S. dollar; (d) gold.

Answer 1

13.

Answer: (b) in a liquidity trap.

According to Keynes, liquidity trap is a situation in which the interest rate reaches its minimum level, compelling people to hold cash rather depositing it in the banks as would not yield much interest.Subsequently, no monetary policy is effective.

On the other,

1)hyperinflation is known as the extremely high inflation.

2) Equilibrium is the point where demand equals supply( of money supply).

3)halitosis is a disease in which the person suffers from oral problems.

14.

Answer : (a) growth in current dollar GDP over at least two consecutive quarters.

Economic expansion is the phase in which the real GDP of an economy grows for two consecutive quarters. It is that phase of business cycle when curve moves from trough to peak.

15.

Answer: (a) an increase in the total cost of Japanese exports into the U.S.

The appreciation in US dollars against japnese yen implies, now US can buy more japnese yen in exchange of one dollar. In other words, U.S can available more goods and services in exchange of one dollars, as a result the US imports rise. And for its counterpart ( japan ), the cost of export of goods and services increase.

16.

Answer: (c) U.S dollar

Reserve currency is that foreign currency which is held by central bank of the nation in the form of foreign exchange reserves. The U.S dollar is such currency held widely by the central bank's of majority of nations. Nowadays, U.S dollar is the world's dominant reserve currency.