question archive True or False (Explain your answers) : 1
True or False (Explain your answers) : 1
Subject:EconomicsPrice:2.88 Bought3
True or False (Explain your answers) :
1. The creation of new bank reserves could lead to a multiple increase in the money supply.
2. Contractionary monetary policy shifts the reserve supply schedule inward.
3. If the price of the dollar changes from 100 Japanese yen to 120 Japanese yen, the dollar has depreciated.
4. When a government intentionally lowers the value of its currency, that is called depreciation.
5. Inflation plays a major role in determining whether a currency is appreciating or depreciating.
6. When a government influences the exchange rate of its currency, it is said to be practicing "dirty floating."
7. The currency of the European Union, the euro, was established as part of the Bretton Woods agreements.
8. An exchange rate appreciation will shift the aggregate demand curve inward.
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1) true. Money supply= deposits/ (1- reserve ratio), as reserve ratio rises, denominator becomes less, numerator becomes large and money supply increases.
2) true. contractionary monetary policy means rise in interest rate, or reserve ratio rises. This means reserve supply schedule shifts inwards.
3) false. if 1$ =120 yen from 1$=100 yen, yen has depreciated and dollar has appreciated as for 1$ you are getting 20 yen more or to get 1$ you have to shell out extra 20 yen.
4)false. if the government intentionally lowers the value of a currency, it is called devaluation not depreciation.
5) true. According to purchasing power parity or PPP, if inflation rises or declines, exchange rate depreciates or appreciates.
6) true. When a government influences the exchange rate of its currency, it is said to be practicing "dirty floating."
7) false. Euro was not created in Bretton woods agreement.It was created much later when Eurozone was formed.
8) false. From IS LM BP model, as exchange rate appreciates, we have BOP deficit, IS shifts leftwards, excess supply of money, excess demand for bonds, price of bonds rise, interest rate decreases, investment rises, so income rises and finally remains unchanged. So, AD curve remains same as before.
