When the Real Interest Rate Rises in the Anchor Country,________

question 24

Multiple Choice

When the real interest rate rises in the anchor country,________.

• A)expansionary monetary policy will be used to maintain the interest rate peg
• B)an economic stimulus is transmitted to pegged economies
• C)there will be downward pressure on the value of pegged currencies
• D)the anchor currency becomes vulnerable to a speculative attack

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Definitions:

Western Europe

A region comprising countries located in the western part of the European continent, often associated with developed economies and democratic governance.

Disposable Income

Income remaining after deduction of taxes and social security charges, available to be spent or saved as one wishes.

APC

Average Propensity to Consume, which measures the fraction of income that households spend on consumption rather than saving.

MPS

Stands for Marginal Propensity to Save, which is the ratio of the change in savings to the change in disposable income. It indicates how much of an additional income unit is saved rather than spent.