1, Suppose that changes in bank regulations expand the availability of credit cards, so that people need to hold less cash.

A, how does this event affect the demand for money?

B, if the central bank does not respond to this event what will happen to the price level?

C, if the central bank wants to keep the price level stable, what should it do?

2, explain whether the following statements are true, false, or uncertain.

A, inflation hurts barrowers and help lenders, because barrowers pay a higher rate of interest.

B, if prices change in a way that leaves the overall price level unchanged then no one is made better or worse off.

C, inflation does not reduce the purchasing power of most workers.

3, how would the following transactions affect your country net capital outflow? Also, state whether each involves direct investment or portfolio investment.

A, a local mobile phone company establishes an office in the Czech republic.

B, harrod's of London sells shares to a pension fund in your country.

C, the Swedish car company, Volvo, expands ITS factory in your country

D, a local mutal funds sells its Volkswagen shares to a French investor.

4, A can of iced tea costs 1 ringgit in Malaysia and 10 baht in Thailand. What would the baht-ringgit exchange rate be if purchasing power parity holds? If a monetary expansion caused all prices in Thailand to double so that iced tea rose to 20 baht per can what would happen to the baht-ringgit exchange rate?

5, suppose that your government introduces an investment tax credit, which subsidizes domestic investment. how does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance?