Scenario 33-1 Suppose That Political Instability in Other Countries Makes People Fear

question 58

Multiple Choice

Scenario 33-1
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.
-Refer to Scenario 33-1. What would happen to the dollar?

• A)It would appreciate in foreign exchange markets making U.S.goods more expensive compared to foreign goods.
• B)It would appreciate in foreign exchange markets making U.S.goods less expensive compared to foreign goods.
• C)It would depreciate in foreign exchange markets making U.S.goods more expensive compared to foreign goods.
• D)It would depreciate in foreign exchange markets making U.S.goods less expensive compared to foreign goods.

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Definitions:

Discount Rate

The rate at which the central bank lends money to commercial banks and other financial institutions through its discount window.

Fiscal Expenditure

Government spending, including spending on goods and services, welfare, and public works, financed through taxation or borrowing.

Taxes

Taxes are compulsory financial charges or levies imposed by a government on individuals or entities to finance government spending and various public expenditures.

Aggregate Demand-Aggregate Supply Model

A macroeconomic model that explains price level and output through the relationship between aggregate demand and aggregate supply.