1. Higher interest rates in the United States will attract foreigners to U.S int
ID: 1112536 • Letter: 1
Question
1. Higher interest rates in the United States will attract foreigners to U.S interest-earning assets. This
a. will have no effect on net exports.
b. decreases U.S. net exports.
c. increases U.S. net exports.
d. decreases U.S. imports.
2. An increase in the U.S. exchange rate will make U.S. exports.
a. more attractive to foreigners and imports from other countries less attractive to the United States.
b. less attractive to foreigners and imports from other countries more attractive to the United States.
c. less attractive to foreigners and imports from other countries less attractive to the United States.
d. more attractive to foreigners and imports from other countries more attractive to the United States.
3. An investor who felt that the U.S. and world economies were about to improve, would be likely to
a. invest in U.S. treasury bonds because interest rates would soon fall causing bond prices to rise.
b. avoid investing in U.S. treasury bonds because interest rates would soon fall causing bond prices to rise.
c. avoid investing in U.S. treasury bonds because interest rates would soon rise causing bond prices to fall.
d. invest in U.S. treasury bonds because interest rates would soon rise causing bond prices to fall.
4. When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money
a. exchange
b. transactions
c. speculative
d. precautionary
5. The _______ demand for money is holding money in expectation that bond prices and the prices of other assets might change
a. speculative
b. transactions
c. exchange
d. precautionary
Explanation / Answer
.1.
When higher interest rates in the United States attract foreigners to U.S interest-earning assets, then there will be capital inflow in search of high-interest rate and as a result, the demand for U.S. dollar will increase. This leads to an appreciation of U.S. currency compared to foreign currency. Therefore U.S. goods and services become expensive relative to foreign goods and services, so the U.S. net export decreases.
Hence option b is the correct answer.
2.
When there will be an increase in the U.S. exchange rate, it means U.S. dollar will depreciate and as a result, the U.S. goods and services become less expensive compared to foreign countries, so the export from U.S. increases while the Import decreases. It means less expensive of goods and services of U.S. will attract foreigners and foreign goods and services are less attractive to U.S. residents.
It means An increase in the U.S. exchange rate will make U.S. exports more attractive to foreigners and imports from other countries less attractive to the United States.
Hence option a is the correct answer.
3. An investor who felt that the U.S. and world economies were about to improve, would be likely to avoid investing in U.S. treasury bonds because interest rates would soon rise causing bond prices to fall.
This is because there is an inverse relationship between the price of bond and interest rate.
So when An investor felt that the U.S. and world economies were about to improve, it means it is expected that interest rate will rise, so the price of the bond will fall, therefore holding bond will give less capital gain in future.
hence option c is the correct answer.
(4)
When people hold money to make anticipated purchases of goods and services, they are exercising the Speculative demand for money.
This is because the speculative demand for money can be defined as the practice of holding money in the cash form, for taking the advantage of change in the market condition in the future.
hence option c is the correct answer.
# According to Chegg guidelines i have solved first four question.
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