Why might a country raise interest rates in the face of an exchange rate crisis?
What will be an ideal response?
If the value of a country's currency is depreciating rapidly, the country's government can purchase the country's currency in foreign exchange markets in an attempt to boost the value of the currency. However, continuing to purchase currency requires reserves of other currencies (like the dollar), and those reserves are not inexhaustible. The result is that a country has to rely on other sources of increase in value for the currency. By raising interest rates, the country makes investment more attractive to foreigners, increasing the demand for currency, and increasing the equilibrium exchange rate.
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Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon?
A) a decrease in demand and a decrease in supply B) an increase in supply C) a decrease in demand and an increase in supply D) an increase in supply and an increase in demand greater than the increase in supply
Suppose the economy is self-regulating and the (actual) unemployment rate is less than the natural unemployment rate. This means that the economy is producing a level of output
A) above its natural level and will eventually cut back on output. B) below its natural level and will eventually increase output. C) below its natural level but no forces exist to automatically increase output. D) above its natural level and institutional constraints will automatically be reduced so as to allow the economy to continue producing this level. E) none of the above