Which of the following central bank policies will raise the money supply?
a. Buying government securities.
b. Selling foreign currency in the foreign exchange market.
c. Raising the discount rate.
d. All of the above.
e. None of the above.
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 the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. There is not enough information to determine what happens to these two macroeconomic variables.
b. The real risk-free interest rate falls, and nominal value of the domestic currency rises.
c. The real risk-free interest rate rises, and nominal value of the domestic currency rises.
d. The real risk-free interest rate rises, and nominal value of the domestic currency remains the same.
e. The real risk-free interest rate falls, and nominal value of the domestic currency falls.
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