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Q.1. Easy monetary policy reduces the real interest rate, which ______ the demand for dollars, ______ the supply of dollars, and ______ the equilibrium value of the dollar.
Answer:
Easy monetary policy reduces the real interest rate, which decreases the demand for dollars, increases the supply of dollars, and decreases the equilibrium value of the dollar.
Q.2. In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the ________ and affects net exports by changing the ________.
a. Inflation rate; unemployment rate
b. Exchange rate; real interest rate
c. Growth of domestic real GDP; growth of foreign real GDP
d. Real interest rate; exchange rate
Answer:
In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the real interest rate and affects net exports by changing the exchange rate.
