1. If Argentina pegged its peso to the U.S. dollar and investors thought that th

Question

1. If Argentina pegged its peso to the U.S. dollar and investors thought that the Peso was about to depreciate, what would Argentina's government have to do to keep its currency fixed?

Select one:

a. Use Argentinean pesos to buy stocks in Argentina's stock market

b. Sell U.S. dollars from their foreign exchange reserves for other foreign currencies like yens or Euros

c. Import more products from Europe and the U.S.

d. Use currency from its foreign exchange reserves like dollars to buy Argentinean government bonds

2.Why did the household savings rate in the United States dropped between 1981 and 2005 (briefly becoming negative in 2005)?

Select one:

a. People real income dropped during that period of time making it more difficult for them to save

b. Many people did not have a job during that period of time because unemployment was high, so they could not save

c. Household savings were largely replaced by government savings through programs like social security

d. The increased availability of credit (borrowing) and low interest rates reduced people's incentive to save

3.Which one of these is an effect that raising minimum wage is likely to create?

Select one:

a. Employment in the economy will increase as more workers join the labor force

b. Firms will make more profit as workers increase their productivity in response to higher wages

c. Unemployment will rise as some businesses will reduce their workforce

d. A higher minimum wage will raise interest rates, which will stimulate savings and investment

4.The U.S. large Current Account Deficit has led to:

Select one:

a. Large inflows of savings, especially from Asia

b. Speculations against the dollar by foreigners

c. A high degree of structural unemployment

d. A strong growth in the supply of money (M1) in the U.S.

Explanation / Answer

1. b. Sell U.S. dollars from their foreign exchange reserves for other foreign currencies like yens or Euros.

Explanation: In exchange rate pegging, the central bank enters into open market operations to buy and sell foreign exchange. When the peso is depreciating against the dollar, this means the dollar is being relatively scarce. This can be prevented by increasing the supply of dollar. This is why Argentina should sell US dollars to increase its supply in the market and bring the exchange rate back to the desired level.

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