1. Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly. a. The interest rate parity condition means that interest rates are equal across countries. b. Other things being equal, the interest parity condition implies that the domestic currency will appreciate in response to an increase in the expected exchange rate. c. If financial investors expect the pound to depreciate against the euro over the coming year, one-year interest rates will be higher in the United Kingdom than in the euro area. d. If the expected exchange rate appreciates, the current exchange rate immediately appreciates. e. The central bank influences the value of the exchange rate by changing the domestic interest rate relative to the foreign interest rate.
1. Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.
a. The interest rate parity condition means that interest rates are equal across countries.
b. Other things being equal, the interest parity condition implies that the domestic currency will appreciate in response to an increase in the expected exchange rate.
c. If financial investors expect the pound to depreciate against the euro over the coming year, one-year interest rates will be higher in the United Kingdom than in the euro area.
d. If the expected exchange rate appreciates, the current exchange rate immediately appreciates.
e. The central bank influences the value of the exchange rate by changing the domestic interest rate relative to the foreign interest rate.
f. An increase in domestic interest rates, all other factors being equal, increases exports.
g. A fiscal expansion, all other factors being equal, tends to increase net exports.
h. Fiscal policy has a greater effect on output in an economy with fixed exchange rates than in an economy with flexible exchange rates.
i. Underafixedexchangerate, the central bank must keep the domestic interest rate equal to the foreign interest rates.
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