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- 18 The following are the monetary policy tools EXCEPT:* A. buying and selling of short-term sukuk B. change the interest rates C. change the reserve requirements D. change in government spending and tax rates21 The main objective of monetary policy is …….* A. Growth with stability B. Reduce poverty and achieve stability C. Overall monetary stability D. None of theseWhich of the following statement about inflation is incorrect a. A positive inflation rate reduces purchase power of dollars b. Excess money supply increases inflation c. A positive inflation rate increases the real interest rate d. A positive inflation rate lows the real interest rate
- QUESTION 15 When considering long-term foreign exchange fluctuations which of the following cause- effect relationships is true? options A. As inflation decreases, the real interest rate decreases and the currency weakens. B. When unemployment decreases, the local economy is stronger and the currency strengthens. C.Greater liquidity and smaller spreads lead to stronger local currency. D.Interest rate increases indicate weaker monetary policies which make a country less attractive to foreign investors and result in weaker local currencies. QUESTION 15(B) The inside market at a pure order driven exchange is 40 bid, 40.5 asked for ABC. Brokers then submit a limit buy order at 40.125, and a limit sell order at 40.425. If you then submit a small buy market order, at what price will your order be filled? options A.40 B. 40.625 C. 40.5 D.40.425 E. 40.125The Federal Reserve increasing interest rates in the hope that the dollar appreciates is an example of indirect intervention. O True O False6 27 20 The Fed can do which of the following in the economy? change both interest rates and the supply of money change the supply of money but not the interest rates change interest rates but not the supply of money change neither interest rates nor the supply of money Previous
- 3. Consider the monetary neutrality. Suppose that the central bank changed the money supply. According to economists’ assumption on monetary neutrality, could the change affect the employment in the short-run? How about in the long-run? Short-run: Long-run:QUESTION 4(a) Explain why the demand for loanable funds tends to increase during expansion.(b) Illustrate any FIVE (5) negative effects of inflation.8. Choose the best scenario when the price level falls: * When the money supply falls, the interest rate rises. The interest rate increases that O reduces savings and affects the exports. Exchange rate rises then falls A low price level induces consumers to save, which drives down the interest rate.
- PQ 6 In the Dornbusch "overshooting" model, asset markets adjust rapidly to disturbances than do goods markets, and therefore the exchange rate and the price level proportionately to each other in the short run. a. more/move b. more/do not move c. less/move d. less/do not moveQUESTION 7 Market failure implies that the market mechanism a. causes shortages or surpluses in the market. b. leads the economy to a point outside the production possibilities curve. O C. leads to government failure O d. leads the economy to the wrong mix of output.8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False The larger the federal deficit, other things held constant, the higher are interest rates. When the economy is weakening, the Fed is likely to increase short-term interest rates. During recessions, short-term interest rates decline more sharply than long-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.
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