In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in
a. an inflation rate of 4 percent, if velocity were constant.
b. an inflation rate of -4 percent, if velocity were constant.
c. a $4 increase in the price level per year.
d. a $4 decrease in the price level per year.
A
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Using the UIP equation to determine the spot exchange rate, assume that the expected spot rate (after one year) for euros (in terms of dollars) = $1.50, the current interest rate on euro deposits is 4.5%, and the current interest rate on dollar deposits is 5.5%. Which of the following current spot rates would satisfy the equation?
a. $1.65 b. $1.50 c. $1.485 d. $1.25
The effect of budget deficits on interest rates
a. increases private investment, so eventually the capital stock rises. b. increases private investment, so eventually the capital stock falls. c. decreases private investment, so eventually the capital stock rises. d. decreases private investment, so eventually the capital stock falls.