Financial Sector
What effect would an increase in a nation’s interest rates have on its exchange rate in the short run?
An initial depreciation followed by appreciation as market adjusts slowly to rate changes.
No change in the exchange rate since interest rates do not impact capital flows directly.
Depreciation of its currency as investors seek lower-yielding investments elsewhere.
Appreciation of its currency due to increased foreign investment inflows.
When economists say that money acts as a store of value, they mean that money can do which of the following?
Retain purchasing power over time.
Only be held by banks or governments.
Fluctuate greatly in worth day-to-day.
Be exchanged directly for any good or service.
Which of the following is an example of contractionary monetary policy?
Reducing taxes
Expanding the money supply
Increasing interest rates
Increasing government spending
How would an appreciation of the domestic currency most likely affect a country's exports?
Not affect exports as currency value does not influence international trade.
Decrease exports due to higher prices for foreign buyers.
Decrease imports because domestic goods become relatively cheaper.
Increase exports by making them more competitive abroad.
Which of the following is an example of automatic stabilizer in the economy?
Trade restrictions
Government subsidies
Expansionary monetary policy
Progressive income tax
Which of the following best represents fiat money?
Barter system where goods are exchanged directly without the use of money
Currency issued by the government that is not backed by a physical commodity
Currency backed by gold or other precious metals
Digital forms of payment such as cryptocurrencies
Considering current inflation targets, what action might consumers take if they believe these targets will be met consistently in the future?
They might increase savings dramatically, expecting an imminent sharp increase in interest rates.
They would engage in brisk expenditures, assuming that prices will rise quickly and dramatically.
They might enter into longer-term fixed-rate loans, anticipating low and stable interest rates.
They could cut back on durable goods purchases, expecting prices to fall significantly.

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What can be a long-term consequence of a sustained current account deficit?
A perpetual increase in net exports due to competitive pricing.
Increased foreign ownership of domestic assets.
Improvement in the balance of payments through automatic stabilization.
Strengthening of the domestic currency leading to cheaper imports.
Which of the following would lead to an increase in the money supply?
Banks raise interest rates on loans
The government increases taxes
Consumer spending decreases
The central bank purchases government bonds in the open market
Which of the following best describes the money multiplier?
The ratio of the money supply to the total bank reserves
The ratio of the monetary base to the government spending
The ratio of the change in the money supply to the change in the monetary base
The ratio of the money supply to the gross domestic product