{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

CH4aSQ - Mankiw Chapter 4 Study Questions 1 A foreign...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Mankiw, Chapter 4 Study Questions 1. A foreign exchange market is a market in which the currency of one country is traded for the currency of another country. In the dollar-yen market, for example, Japense yen are exchanged for U.S. dollars. Sellers of yen are buyers of dollars, and buyers of yen are sellers of dollars. In the early months of this year the dollar lost value against the yen. In response, the Federal Reserve purchased dollars (and sold yen) in the open market to keep the dollar from losing even more value. Other things equal, what was the effect of this foreign exchange market intervention on the U.S. money supply? 2. Suppose that during the 1980s the average nominal interest rate on loans of a particular kind was 8% in the United States and 75% in Argentina. What is the most likely cause of this large difference in nominal interest rates? Explain. 3. In the 16th century, gold was the main kind of money in much of Western Europe. Spanish explorers discovered gold in South America and transported large quantities of gold back to Europe. What were the likely effects of this gold inflow? Explain. 4. Suppose the average rate of money growth is 5% per year in country A and 20% per year in country B. Other things equal, which country is likely to have the higher real money supply (M/P)? Explain. 5. Suppose that in the decade after the year 2000 inflation in the United States becomes more and more of a problem. A clever government official comes up with a policy to fight inflation and convinces the President and Congress to implement it. The official reasons that inflation is caused by money growth, so the way to bring inflation down is to reduce the money supply. The policy is to one day announce that from that point on all $20 and $50 dollar bills are worthless. The $1, $2, $5, $10, and $100 dollar bills would still have the same value. This policy would reduce the US money supply by about 5 percent.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern