An increase in the foreign one-year interest rate expected to occur in, say, two years will, all else fixed, have which of the following effects in a flexible exchange rate regime?
A) The real exchange rate will decrease with no change in the nominal exchange rate.
B) The nominal exchange rate will decrease with no change in the real exchange rate.
C) Both the real and nominal exchange rate will decrease.
D) No change in either the nominal or real exchange rate.
E) Both the real and nominal exchange rate will increase.
Question 2
Suppose the saving rate is initially greater than the golden rule saving rate. We know with certainty that an increase in the saving rate will cause
A) an increase in the rate of growth in the long run.
B) a reduction in output per worker.
C) a reduction in consumption per worker.
D) all of the above
E) none of the above
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