A decrease in the real risk-free interest rate causes the:
a. Preferred asset ratio for currency in circulation (C/D) to rise, which increases the quantity of real loanable funds supplied.
b. Preferred asset ratio for customary reserves (U/D) to rise, which increases the quantity of real loanable funds supplied.
c. Preferred asset ratio for near money (N/D) to fall, which decreases the quantity of real loanable funds supplied.
e. None of the above.
Question 2
What happens to the Canadian M2 money supply if there is an excess demand of 100 million euros in the foreign exchange market and the central bank intervenes to offset the excess? Assume the M2 money multiplier is 3.
a. The Canadian M2 money supply falls by 300 million euros worth of Canadian dollars.
b. The Canadian M2 money supply rises by 300 million euros worth of Canadian dollars.
c. The Canadian M2 money supply might fall or rise.
d. The Canadian M2 money supply rises by 100 million euros worth of Canadian dollars.
e. The Canadian M2 money supply falls by 100 million euros worth of Canadian dollars.
Risk for falls cont'd
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