A Business Cycle Expansion Increases Income,causing Money Demand to ________

question 65

Multiple Choice

A business cycle expansion increases income,causing money demand to ________ and interest rates to ________,everything else held constant.

• A) increase; increase
• B) increase; decrease
• C) decrease; decrease
• D) decrease; increase

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Definitions:

Forward Rates

Interest rates or exchange rates fixed now for financial transactions that will occur at a future date.

Home Currency Approach

A method of assessing an international investment by converting all foreign currencies involved into the investor’s domestic or "home" currency.

Spot Rate

The ongoing market rate at which a certain currency is available for buying or selling for immediate dispatch.

Unbiased Forward Rate

Theoretically, a forward rate in the currencies market that is equal to the spot rate adjusted for interest rate differentials, without any prediction of future direction.