Explain how an increase in American interest rates will lead to an appreciation of the U.S. dollar vis-à-vis the British pound
Americans will demand fewer pounds, because of the higher investment return in the U.S. Therefore, less
money will be available for investments in Great Britain. Meanwhile, the British will supply more pounds,
because they will want to make more investments in the United States due to the higher American interest
rates. Greater demand for dollar-denominated investments will lead to a dollar appreciation. Conversely, it
will take fewer dollars to buy a pound.
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To measure the "core" inflation rate, the Bureau of Economic Analysis uses a price measure that
A. excludes food and energy prices because the prices of these items can be volatile. B. includes food and energy prices because the se items account for a significant portion of the typical consumer's expenditures. C. is made up of a fixed basket that includes durable goods, non-durable goods, and services. D. includes prices for different components of gross private domestic investment, government spending, and personal consumption expenditures.
If the federal government tries to make fiscal policy sustainable by increasing seigniorage, the economy would experience ________ and will result in ________ potential GDP
A) a decrease in the growth rate of the money supply; lower B) an increase in the growth rate of the money supply; higher C) an increase in inflation; lower D) a decrease in the real interest rate; higher