Question

Question: 5

The relationship between the quantity of real balances demanded and the rate of interest (called the demand for money curve) will ____ when GDP increases because _____. *

A) increase (shift right); more transactions balances are needed to make purchases and to hold between pay periods

B) increase (shift right); more asset balances are needed for saving or precautionary reasons

C) decrease (shift left); fewer transactions balances are needed to make purchases and to hold between pay periods

D) decrease (shift left); lower asset balances are needed for saving or precautionary reasons

Question: 6

Suppose that the United States does of its trade with Canada, with the United Kingdom, and with Mexico. If the dollar real exchange rate rises by 10% with Canada, rises by 20% for the United Kingdom, and falls by 10% for Mexico, what is the percentage change in the real effective exchange rate? *

A) 11.5%

B) 10%

C) 7.5%

D) –2.5%

Question: 7

In 2002, $1 = 1 euro, and in 2006, $1 = 0.6 euro. If a Ferrari cost $100,000 in 2002, then it should have cost ______ in 2006. *

A) $160,000

B) $140,000

C) $166,666

D) $60,000

Question: 8

When a domestic investor sells a foreign asset to a foreigner, the financial account: *

A) rises.

B) stays the same.

C) falls.

D) Not enough information is provided to answer the question.

Answer 1

5) Option A) increase (shift right); more transactions balances are needed to make purchases and to hold between pay periods.

The relationship between the quantity of real balances demanded and the rate of interest (called the demand for money curve) will increase (shift right) when GDP increases because more transactions balances are needed to make purchases and to hold between pay periods.

6) Question is incomplete as trade percentages with different countries is not provided. Please upload complete question separately.

7) Option C) $166,666

Exchange rate in 2002 is $1 = 1 euro.
Exchange rate in 2006 is $1 = 0.60 euro.

The value of dollar has declined over a period of four years. This implies that for 1 dollar we need to pay only 0.60 euro. The value of euro has increased while the value of dollar has decreased.
1 dollar= 0.60 euro
1 /0.60= 1 euro
1.66 $ = 1 euro

Thus, If a Ferrari cost $100,000 in 2002, then it's cost in 2006 will be = 100000 * 1.66 = $166666.67

8) Option A) rises.

When a domestic investor sells a foreign asset to a foreigner, the financial account rises.