Assume a nation has a fixed exchange rate, and the central bank increases the required reserve ratio. What is the net effect on the monetary base (given fixed exchange rates)? Answer assuming all the adjustments have worked their way through the macroeconomic system, and it is in equilibrium.
a. The monetary base rises.
b. The monetary base falls.
c. The monetary base is not affected in this example.
d. The monetary base can not change because of the Impossible Trilogy.
e. The change in the monetary base is ambiguous.
Question 2
If the price of inputs rises and consumer expectations about future economic activity worsens:
a. Price index falls, and real GDP falls.
b. Price index falls, and the change in real GDP is uncertain.
c. The change in price index is uncertain, and real GDP rises.
d. The change in price index is uncertain, and real GDP falls.
e. Neither the price index nor real GDP changes.
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