Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and reserve-related (central bank) transactions remain the same.
b. The real risk-free interest rate falls, and reserve-related (central bank) transactions become more negative (or less positive).
c. The real risk-free interest rate rises, and reserve-related (central bank) transactions remain the same.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The real risk-free interest rate rises, and reserve-related (central bank) transactions become more positive (or less negative).
Question 2 - Central banks can increase the money supply by:
a. Buying government securities.
b. Selling foreign exchange.
c. Raising margin requirements.
d. All of the above.
e. None of the above.
Question 3 - Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and current international transactions in the context of the Three-Sector-Model?
a. There is not enough information to determine what happens to these two macroeconomic variables.
b. The real risk-free interest rate falls, and current international transactions become more positive (or less positive).
c. The real risk-free interest rate rises, and current international transactions remain the same.
d. The real risk-free interest rate rises, and current international transactions become more positive (or less negative).
e. The real risk-free interest rate and current international transactions remain the same.
Question 4 - Central banks can increase the money supply by:
a. Increasing the discount rate.
b. Buying government securities.
c. Selling foreign exchange.
d. All of the above.
e. None of the above.
Question 5 - Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and GDP Price Index falls.
b. The real risk-free interest rate falls, and GDP Price Index rises.
c. The real risk-free interest rate rises, and GDP Price Index falls.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The real risk-free interest rate and GDP Price Index remain the same.
Question 6 - Which of the following central bank policies will lower the money supply?
a. Lowering the reserve ratio.
b. Lowering the discount rate.
c. Selling foreign currency in the foreign exchange market.
d. Buying government securities.
e. All of the above.
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