Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and the monetary base in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls and monetary base falls.
b. The real risk-free interest rate rises and monetary base falls.
c. The real risk-free interest rate falls and monetary base rises.
d. The real risk-free interest rate and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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Which of the following statements is incorrect?
A. Any central bank policy that influences the domestic interest rate will affect the exchange rate. B. A foreign exchange intervention affects the value of a country's currency by changing domestic interest rates. C. Higher U.S. interest rates would likely result in an appreciation of the U.S. dollar. D. Sterilized changes in foreign exchange reserves alter a country's monetary base.
Research in history and economic history shows that before 1880,
(a) there was some government intervention in the private sector of the American economy. (b) there was substantial federal regulation of private business organization but little influence in the economy otherwise. (c) the regulation and participation that existed were usually of a background nature and were not concerned with the details of day-to-day private business. (d) laissez faire was the rule so far as the federal government was concerned.