One lesson history has taught us is, if governments tax and over-regulate currencies and banks:
a. The private sector usually finds a way to circumvent these taxes and restrictions.
b. Governments have been very effective at controlling the pace at which currencies have developed worldwide.
c. Commerce rarely follows community.
d. To gain widespread trust and usage, currencies must be backed by precious metals.
Question 2
Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and GDP Price Index falls.
b. The real risk-free interest rate falls, and GDP Price Index rises.
c. The real risk-free interest rate rises, and GDP Price Index falls.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The real risk-free interest rate and GDP Price Index remain the same.
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