Homework 4-key - NAME Homework 4 ECO 215 SPRING 2008 CUTLER Due at the beginning of class on Monday April 14th MULTIPLE-CHOICE questions Please

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NAME________________________________________________________________________ Homework 4 - ECO 215 - SPRING 2008 - CUTLER Due at the beginning of class on Monday, April 14th MULTIPLE-CHOICE questions - Please, select the letter which best answers each question, and enter it into the table provided at the end of the homework form. Each multiple-choice question is worth 0.5 point. 1. Perfect asset substitutability is the assumption that (a) the foreign exchange market is in equilibrium only when expected returns on domestic assets are greater than returns on foreign currency bonds (b) the foreign exchange market is in equilibrium only when expected returns on foreign currency bonds are greater than returns on domestic assets (c) the foreign exchange market is in equilibrium only when expected returns on all assets are negative (d) the foreign exchange market is in equilibrium only when expected returns on domestic assets are equal to returns on foreign currency bonds (e) the foreign exchange market is in equilibrium only when domestic assets are risk-free Answer: D 2. Which one of the following statements is the most accurate? (a) Depreciation is a rise in E when the exchange rate is fixed while devaluation is a rise in E when the exchange rate floats. (b) Depreciation is a decrease in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. (c) Depreciation is a rise in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. (d) Depreciation is a rise in E when the exchange rate floats while devaluation is a decrease in E when the exchange rate is fixed. (e) None of the above. Answer: C 3. Which one of the following statements is most true? (a) Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. (b) Any central bank purchase of assets results in an increase in the domestic money supply, while any central bank sale of assets causes the money supply to decline. (c) Any central bank purchase of assets automatically results in a decrease in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. (d)
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This note was uploaded on 09/23/2008 for the course ECONOMICS 240 taught by Professor Cramer during the Spring '08 term at American University in Bulgaria.

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Homework 4-key - NAME Homework 4 ECO 215 SPRING 2008 CUTLER Due at the beginning of class on Monday April 14th MULTIPLE-CHOICE questions Please

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