Author Question: If banks pay back their borrowings from the central bank: a. The monetary base will decrease. b. ... (Read 39 times)

tichca · **on:** Jun 30, 2018

If banks pay back their borrowings from the central bank:
a. The monetary base will decrease.
b. Excess reserves will rise.
c. The M2 multiplier will fall.
d. The monetary base will rise.

Question 2

Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility 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. The real risk-free interest rate rises, and nominal value of the domestic currency falls.
b. The real risk-free interest rate falls, and nominal value of the domestic currency falls.
c. The real risk-free interest rate rises, and nominal value of the domestic currency remains the same.
d. The real risk-free interest rate rises, and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.