1. When the Federal Reserve sells bonds on the open market, it leads to ______ (higher/lower) levels of investment and output in the economy.
2. To decrease the level of output, the Fed should conduct an open market______ (sale/purchase) of bonds.
3. An open market purchase ______the supply of money, which ______interest rates, which ______investment, and finally results in a(n) ______ in output.
4. An increase in the supply of money will ______ (appreciate/depreciate) a country s currency.
5. Interest Rates, Durable Goods, and Nondurable Goods. Refrigerators and clothing are to some extent durable. Explain why the decision to purchase a refrigerator is likely to be more sensitive to interest rates than the decision to buy clothing.
6. Where Is Monetary Policy Stronger? In an open economy, changes in monetary policy affect both interest rates and exchange rates. Comparing the United States and Switzerland, in which country would monetary policy have a more significant effect on GDP through changes in exchange rates?
7. Side Effects of Supporting a Currency. Suppose a country s currency came under attack by speculators, and to prevent the value of its currency from falling, the central bank needed to raise interest rates. What would be the side effect of such a policy?