Author Question: A currency system in which exchange rates are determined in free markets is called a A) gold ... (Read 95 times)

809779 · **on:** Jun 29, 2018

A currency system in which exchange rates are determined in free markets is called a

A) gold standard. B) flexible exchange rate system.
C) fixed exchange rate system. D) all of the above

Question 2

The above diagram has a demand for money curve. Suppose the Fed initially sets the quantity of money equal to 0.6 trillion. Draw the supply of money curve in the figure.

What is the equilibrium interest rate? Now suppose the Fed increases the quantity of money to 0.9 trillion. Draw the new supply curve. What is the new equilibrium interest rate?

josephsuarez · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

The initial supply of money curve is MS1 and the equilibrium interest rate is 6 percent. When the Fed increases the quantity of money, the supply of money curve shifts to MS2 and the equilibrium interest rate falls to 4 percent.