Question

1.         If American consumers buy more French wine, then:

a)the demand for dollars will increase.

b)the supply of dollars will increase.

c)the demand for euros will increase.

d)Both b and c are correct.

2.         When the value of the euro changes from $1.30 to $1.20, it follows that:

A.The dollar has depreciated, so American goods become more expensive for Europeans.

B.The euro has depreciated, so American goods become cheaper for Europeans.

C.The dollar has appreciated, so European goods become more expensive for Americans.

D.The euro has depreciated, so American goods become more expensive for Europeans.

3.         A. In order for the federal funds rate to rise, the supply of banks’ reserves must

A. rise    B. fall

B. To make reserves smaller, the Fed must ______________

securities.

C. A side effect of the fed’s efforts to strengthen the dollar is that Aggregate Demand __________ as interest rates rise.

A.Shifts to the right

B.Shifts to the left

4.         A. In order for the federal funds rate to fall, the supply of banks’ reserves must

A. rise    B. fall

B. To make reserves bigger, the Fed must _____________

securities.

A.buy   B. sell

C. A side effect of the fed’s efforts to “weaken” the dollar is that Aggregate Demand __________ as interest rates “Fall”.

                                                                  

A.Shifts to the right

B.Shifts to the left

Answer 1

1. d) Both b and c are correct.

If Amercians want to buy French goods then Americans have to spend dollars and demand euros to make purchases. So, supply of dollars increases and demand of euros will increase.

2. D.The euro has depreciated, so American goods become more expensive for Europeans.

Initially 1 euro is able to purchase goods worth $ 1.30 but now same euro is able to purchase goods worth $ 1.20 so appreciation of dollar and depreciation of euro.

3. A. rise

When bank's reserve rise then there will be more lending of money which increases money supply and to control it Federal funds rate should be increased.

B. sell

When fed sell bonds then money supply decreases as banks left with less reserves.

C. A.Shifts to the right

4.  B. fall

When bank's reserve fall then there will be less lending of money which decreases money supply and to increase money supply Federal funds rate should be decreased.

A. Buy

When fed buy securities then money supply increases as reserves of bank increases.

C.B.Shifts to the left