question archive True or False Determine if the following statements are TRUE or FALSE
True or False Determine if the following statements are TRUE or FALSE
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True or False
Determine if the following statements are TRUE or FALSE. Explain your answer if FALSE.
1)(2 Points) "In the long term, a temporary decrease in money supply will lead to an increase in domestic interest rates and depreciation of the foreign currency, all else equal."
2)(2 Points) "Purchasing Power Parity suggests that countries with high domestic inflation rates should experience a high rate of real exchange rate depreciation relative to the currency of countries with lower inflation rates."
3)(2 Points) "Under the gold standard, a country can undo or sterilize the inflationary effects of gold imports through monetary expansion."
4)(2 Points) "The Balassa Samuelson Effect describes the appreciation of the real exchange rate from faster domestic productivity (and hence output) growth in tradeable goods and services."
5)(2 Points) "According to the short-term model (i.e., Asset Approach), foreign exchange rate volatility can be explained by monetary policy shocks and sticky prices."
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Answers in the discussion part
Step-by-step explanation
(1) True - an occurrence of a temporary decrease experienced in the money supply in a given economy will result in an increase in domestic interest rates.
(2 ) False - since the purchasing power equality relates to the purchasing powers of different world currency. It is then the exchange rate, which permits buying the same amount of products in every country.
(3) True: Inflow of gold tends to increase the money supply that can be squared off by the expansionary policy.
(4 ) True - The Balassa Samuelson outcome defines the appreciation of real exchange rate from faster domestic productivity growth in traceable products (goods and services).
(5) True: Monetary policy is the determinant of interest rate and therefore exchange rates as well
