Use the following to answer question 5: Figure: Changes in the Money Supply Inte

Question

Use the following to answer question 5: Figure: Changes in the Money Supply Interest rate, r Q Qz Quantity of money 5. Figure: Changes in the Money Supply) Refer to the information in the figure Changes in the Money Supply. If the supply of money shifts from Si to S2, the Federal Reserve bonds in the open market. must have A) sold B) bought C) issued new D) borrowed 6. Due to a recession, George has been laid off from his construction job. The unemployment George is experiencing is A) cyclical B) structural C) seasonal D) frictional 7. If the value of a U.S. dollar changes from $120 to $1 10, it follows that A) the Japanese yen is depreciating and the U.S. dollar is appreciating B) U.S. goods become cheaper for Japanese consumers to purchase. C) Japanese goods become cheaper for U.S. consumers to purchase. D) U.S. services become more expensive for Japanese firms to purchase.

Explanation / Answer

5. The correct answer is: b)

Reason: When the Fed purchases bonds in the open market, it increases the domestic money supply in the process.

6. The correct answer is: a)

Reason: As the name suggest, cyclical unemployment occurs during periods of recession and depressions.

7.The correct answer is: b)

Reason: As the US dollar changes from 120 to 110, the Japanese yen actually appreciates and the US goods and services becomes cheaper for Japan.

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