Consider an Economy with a Fixed Exchange Rate and Money

question 58

Multiple Choice

Consider an economy with a fixed exchange rate and money supply equal to 2 billion pesos. The country has 1 billion in reserves and 1 billion in domestic credit. If there is a sudden decline in the demand for money, then:

• A) the country needs to reduce its reserves to maintain the exchange rate.
• B) the country needs to increase its reserves to maintain the exchange rate.
• C) the country will face rising interest rates and, thus, a sharp appreciation of the peso.
• D) the country will see a sharp increase in the demand for loans.

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Definitions:

Closed Shop Agreement

A labor agreement requiring employees to be members of a specific union as a condition of being hired and to remain in the union for the duration of their employment.

Wages

Compensation provided to employees for their work, usually determined on the basis of hours, days, or the amount of work completed.

Labor Demanded

The total amount of labor hours that employers want to hire at a given wage rate, over a certain period.

Wagner Act

a foundational statute of US labor law which guarantees basic rights of private sector employees to organize into trade unions, engage in collective bargaining, and take collective action such as strikes.