Question

37. A(n) _____ in the money supply in a country _____ the domestic interest rates. a....

37. A(n) _____ in the money supply in a country _____ the domestic interest rates.

a. expansion; increases

b. expansion; decreases

c. contraction; decreases

d. contraction; has no impact on

38. A(n) _____ in a country’s money supply causes international capital _____.

a. expansion; outflows

b. expansion; inflows

c. contraction; outflows

d. contraction; stock to stabilize

39. Following an expansion of the money supply, a government committed to maintaining a fixed exchange rate must:

a. accept a surplus in its current account.

b. not use sterilized intervention.

c. increase its level of government expenditure and autonomous investments.

d. intervene in the foreign exchange market to sell foreign currency and buy domestic currency.

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Homework Answers

Answer #1

a) An "expansion" in the money supply in a country "Decrease" the interest rates.

The answer is "B", Expansion and Decrease.

b) An "expansion" in a country money supply causes the international capital "outflow".

The answer is "A".

c) Here, because of a decrease in the interest rate, the demand for local currency will fall and foreign currency will increase by selling foreign currency and buying local currency the exchange rate can be maintained. The answer is "D".

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