1. Describe what the reserve ratio means. Explain the difference between the simple money multiplier and the money multiplier (provide examples by assuming c is .10 and r is .1). please discuss the scenario where the economy starts to enter a recession and people hold more money. How does this effect the economy based on the money multipliers?
2. How does expansionary and contractionary monetary policy work in the context of the AS/AD model? Be sure to address which way curves shifts and the process that happens to get to a desired outcome.
3. Explain what is the Foreign Exchange market and how it is related to the balance of payments for a country?
What are the four fundamental determinants of a country's exchange rate and what is likely to happen to the exchange rate in the following cases?
In the following 4 examples, what is the end effect on the currency addressed? Did it go up or down and why. Describe the movements
(1) A fall in the U.S. interest rate relative to interest rates abroad (dollar).
(2) A higher inflation rate in Japan compared to other countries (yen).
(3) A severe recession in Europe (euro).
(4) The U.S. imposes a 15% tariff on Japanese imported cars (dollar).
4. How will the eventual restoring of U.S. competitiveness affect U.S. macro policy in the future? What kind of issues will the Fed and Government have to face when this starts to happen?