Question

1. Which statement best predicts the effects of an increase in the supply of loanable funds?

        a.    The interest rate and the real exchange rate both increase.

        b.    The interest rate and the real exchange rate both decrease.

        c.     The interest rate increases, and the real exchange rate decreases.

        d.    The interest rate decreases, and the real exchange rate increases.

2. Which statement is consistent with an above-the-equilibrium exchange rate of the dollar?

a.       The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate.

b.       The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate.

c.       The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate.

d.       The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate.

3. Suppose that the government of Jordan raises its budget deficit. Which statement best predicts the effects of this action?

a.       The real exchange rate of the Jordanian dinar would depreciate, and Jordanian net exports would rise.

b.       The real exchange rate of the Jordanian dinar would depreciate, and Jordanian net exports would fall.

c.       The real exchange rate of the Jordanian dinar would appreciate, and Jordanian net exports would rise.

d.       The real exchange rate of the Jordanian dinar would appreciate, and Jordanian net exports would fall.

Answer 1

a) "B"

It will lead to a lower interest rate and depreciate the real currency.

b) "B"

the quantity of dollar supplied is more than the demand for the dollar thus the dollar will depreciate.

c) "D"

this will lead to a higher interest rate and that will lead to appreciation of the currency and net exports of the nation will fall.