Which of the following describes the role of the government in a fixed exchange rate regime?
a. establishing capital controls
b. controlling budget deficits
c. buying and selling of currency by the central bank
d. expanding the money supply
Ans: c. buying and selling of currency by the central bank
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The substitution effect of an increase in the price of Raisin Bran refers to
A) the decrease in the demand for Raisin Bran when its price rises. B) the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. C) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran. D) the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant.
Real interest rates are
A) procyclical, just like nominal interest rates. B) acyclical, while nominal interest rates are procyclical. C) acyclical, just like nominal interest rates. D) countercyclical, while nominal interest rates are procyclical.