Question

11

a. Assume that the value of a country's currency is 1 when the price level is 1.5.

     If the price level changes to 0.8, the value of the country's currency will change by  percent.

b. Now assume that the value of a country's currency is equal to 1 when the price level is 0.75.

     If the price level changes to 1.75, the value of the country's currency will change by  percent.

5

Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates?

• The Board of Governors of the Federal Reserve System.

• The Federal Reserve System.

• The 12 Federal Reserve Banks.

• The Federal Open Market Committee (FOMC).

Answer 1

Value of money = Amount of money / price level

a. Value of money = 1, price level = 1.5

Amount of money = 1.5

When price level changes to 0.8, the value of money = 1.5/0.8 = 1.875

Change in value of money (%) = (1.875 - 1)/1 * 100 = 0.875*100 = 87.5%

b. value of money = 1, price level = 0.75

Amount of money = 0.75

when price level = 1.75

Value of money = 0.75/1.75 = 0.42857

Change (%)= (0.42857-1)/1 *100 = -0.57142 * 100 = -57.14%

5. The Federal Open Market Committee (FOMC) votes on the open market operations