Question

1. Suppose the Federal Reserve raises its target for the federal funds rate while interest rates in other countries do not change. The result will be

a. an outflow of financial capital, a decrease in demand for U.S. dollars, and a depreciation of the U.S. dollar.

b. an inflow of financial capital, a decrease in demand for U.S. dollars, and a depreciation of the U.S. dollar.

c. an inflow of financial capital, an increase in demand for U.S. dollars, and an appreciation of the U.S. dollar.

d. an outflow of financial capital, an increase in demand for U.S. dollars, and an appreciation of the U.S. dollar.

2. CALCULATION QUESTION

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Saving equals $ _____ billion.

3. In-kind transfers,

a. Encourage the poor to earn more income.

b. Decrease the real income of poor families.

c.Are more target-efficient than cash.

d. Are received as cash

Answer 1

1. C : an inflow of financial capital, an increase in demand for US dollars, and an appreciation of the US dollar.

when federal fund rates are increased and other country's interest rate remains same, then, this attracts some inflow of capital from all over the world and this will increase demand of dollar as it people will invest in dollar denominated investments and thus leading to dollar appreciation.

2. Savings are the left over income of a consumer which is left after he/she has spend on his/her expenditures

savings equals $30 billion. because investment and net capital outflow equals savings

3. A: are more target efficient than cash. Because for example in kind transfer are better targetted for example take a case of government providing medicare for senior citizens in a particular area.