When cash is deposited in a checkable-deposit account at a bank, there is a(n)
A. increase in the bank's liabilities.
B. increase in the money supply M1.
C. decrease in the money supply M1.
D. increase in the bank's net worth.
Answer: A
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Which of the following holds true, if goods sell for the same price worldwide when converted to a common currency?
a. A high rate of inflation exists b. A fixed exchange-rate system exists c. Purchasing power parity exists d. The foreign exchange market is in equilibrium e. Arbitrage opportunities exist
Under a system of flexible exchange rates, which of the following would be most likely to cause a nation's currency to appreciate on the foreign exchange market?
a. stable domestic prices while the nation's trading partners are experiencing inflation b. a decrease in domestic interest rates c. an increase in foreign interest rates d. a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices