Assume the government decides to reduce spending in order to reduce the budget deficit, which it financed by borrowing in the real credit market. What is the first round effect on the value of the domestic currency, if there is low mobility in the international capital markets?
a. The value of the currency rises.
b. The value of the currency falls.
c. The value of the currency is unaffected.
d. The change in the value of the currency is ambiguous.
.A
Economics
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A decrease in the foreign interest rate relative to the domestic interest rate ________ the exchange rate value of a foreign currency in the short run.
A. causes fluctuations in B. does not affect C. lowers D. raises
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The demand for a luxury good whose purchase would exhaust a big portion of one's income is
A. relatively elastic. B. relatively inelastic. C. perfectly elastic. D. unit-elastic.
Economics