In 1995 House Speaker Newt Gingrich Threatened to Send the United

question 66

Multiple Choice

In 1995 House Speaker Newt Gingrich threatened to send the United States into default on its debt.During the day of this announcement,U.S.interest rates rose and the real exchange rate of the U.S.dollar depreciated.Which of these changes is consistent with the results of the open-economy macroeconomic model?

• A)the increase in U.S.interest rates
• B)the depreciation of the real exchange rate of the U.S.dollar
• C)Both a and b are consistent.
• D)Neither a nor b are consistent.

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Definitions:

Reserve Ratio

The fraction of deposits that banks are required to keep on hand as reserves, aimed at ensuring liquidity and controlling the money supply.

Discount Rate

The interest rate charged by central banks on loans they offer to commercial banks or the rate used in discounted cash flow analysis to determine the present value of future cash flows.

Money Supply

The full tally of available monetary resources in an economy at a specified time, comprising cash, coins, and checking and savings account funds.

Reserve Requirement

Central bank regulations that set the minimum amount of reserves that must be held by a commercial bank.