Author Question: Currency traders expect the value of the dollar to rise. What effect will this have on the demand ... (Read 64 times)

meagbuch · **on:** Jun 29, 2018

Currency traders expect the value of the dollar to rise. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

A) Demand for dollars will decrease, and supply of dollars will increase.
B) Demand for dollars will decrease, and supply of dollars will decrease.
C) Demand for dollars will increase, and supply of dollars will increase.
D) Demand for dollars will increase, and supply of dollars will decrease.

Question 2

How will the purchase of 100 million of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves, that households and

firms do not change the amount of currency they hold, and that the required reserve ratio is 20 percent.

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

Answer to Question 1

D

Answer to Question 2

Bank reserves will increase by 100 million when the seller of the bond deposits the 100 million in its checking account. Total checking account deposits in the banking system as a whole will increase by 500 millionthe 100 million increase in reserves times the simple deposit multiplier of 5.