When the nominal interest rate rises, the quantity of money demanded decreases because
A) people will buy fewer goods and hence hold less money.
B) the price level also rises and people decrease their demand for money.
C) people shift funds from interest-bearing assets into money.
D) people shift funds from money holdings to interest-bearing assets.
D
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Suppose the 12-month interest rate on a U.S. Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent. The exchange rate today is $2.00 per pound. What must be the expected exchange rate at maturity for interest rate parity to hold?
a. $1.00 = 0.50 pound b. $1.00 = 0.75 pound c. 1 pound = $2.20 d. 1 pound = $1.80 e. 1 pound = $2.50
Elasticity of demand is calculated using percentage changes in both price and quantity.
Answer the following statement true (T) or false (F)