AP Macro Money Market

Suppose interest rates fall in the United States, but they don't fall in Mexico. What is the short-run impact on the value of the U.S. dollar (USD) and the value of the Mexican Peso (Peso)?

• USD / Peso

  Appreciate / appreciate

• USD / Peso

  Appreciate / depreciate

• USD / Peso

  Depreciate / depreciate

• USD / Peso

  Depreciate / appreciate

• USD / Peso

  Depreciate / no change

An increase in a country’s interest rate relative to other country’s interest rate will most likely cause which of the following?

• An decrease in the demand for the country’s currency

• An increase in the supply of the country’s currency

• The depreciation of the country’s currency

• An increase in the amount of domestic investment

• Capital inflow into the country to exceed capital outflow

If there is a large increase in the number of Europeans traveling to the United States while US citizens’ travel to Europe remains unchanged, which of the following is true

• The euro will depreciate because the demand for euros will decrease

• The euro will depreciate because the supply of euros will increase

• The euro will appreciate because the demand for euros will increase

• The dollar will appreciate because the demand of dollars will decrease

• The dollar will appreciate because the supply of dollars will increase

An increase in Korea’s demand for U.S. goods would cause the US dollar to

• Depreciate because of inflation

• Depreciate because the U.S. would be selling more dollars to Korea

• Depreciate because the U.S. money supply would increase as exports rise

• Appreciate because Korea would be buying more U.S. dollars

• Appreciate because Korea would be selling more U.S. dollars

Depreciation

• The market determines the value of the country’s currency

• The government activity manages the country’s currency

• The increase of value of a country's currency with respect to a foreign currency (becomes stronger)

• The loss of value of a country's currency with respect to a foreign currency (becomes weaker)

• The price of one currency in terms of the other currency

Exchange Rate

• The market determines the value of the country’s currency

• The government activity manages the country’s currency

• The increase of value of a country's currency with respect to a foreign currency (becomes stronger)

• The loss of value of a country's currency with respect to a foreign currency (becomes weaker)

• The price of one currency in terms of the other currency

Appreciation

• The market determines the value of the country’s currency

• The government activity manages the country’s currency

• The increase of value of a country's currency with respect to a foreign currency (becomes stronger)

• The loss of value of a country's currency with respect to a foreign currency (becomes weaker)

• The price of one currency in terms of the other currency

What happens to the money supply when the central bank buys government securities in the open market?

• A) The money supply increases

• B) The money supply decreases

• C) The money supply remains unchanged

• D) The money supply becomes more volatile

If the reserve requirement is lowered, what is the likely impact on the money supply?

• A) The money supply will increase

• B) The money supply will decrease

• C) The money supply will remain unchanged

• D) The money supply will become more volatile

Which of the following is a tool of monetary policy used by central banks to control the money supply?

• A) Taxation

• B) Open market operations

• C) Government spending

• D) Trade tariffs