Question

1) According to this Application, there will always be a worldwide demand for dollars as long as

	A.	the dollar remains a commodity money.
	B.	the dollar can be exchanged for gold.
	C.	the United States remains a world economic power.
	D.	the dollar's exchange rate does not change.

2) When the government "services the debt," it is:

	A.	replacing matured debt with new issues.
	B.	increasing the level of debt.
	C.	paying interest on the existing debt.
	D.	decreasing the level of debt.

3) In the long run, decreases in the money supply will

	A.	decrease real interest rates.
	B.	increase real interest rates.
	C.	may increase or decrease real interest rates.
	D.	have no effect on real interest rates.

Answer 1

1. C. The united states remain a world economic power.

It is because the maximum trades take place in the US which makes it a very powerful nation.

2. C. Paying interest on the existing debt

When the government is said to service the debt it means that it is paying the interest it has to pay on the amount of debt.

3. B. Increase the interest rate

When the supply of money is increased it reduces the rate of interest so conversely a decrease in the supply of money by the central bank will increase the interest rate.