16. "The governor of the Bank of Canada urged Canadians today to continue the fight against inflation, but warned they cannot expect any significant drop in interest rates until the U.S. takes convincing action to reduce its budget deficit." Despite this statement, the Canadian interest rate could fall significantly if

a) the risk premium were to rise b) the Canadian budget deficit fell significantly

c) Canadian money growth were increased and its exchange rate fixed

d) Canadian inflation were lowered and its exchange rate allowed to increase

17. "West Germany's decision to spend 85 billion dollars on reunification probably pushed up interest rates in the United States by half a percentage point." U.S. interest rates rose because

a) the world real interest rate rose b) expected inflation in Germany rose

c) the nominal interest rate in Germany rose

d) the risk premium between the U.S. and Germany rose

18. "A recent study claims that Japanese households are likely to decrease their saving rate in the 1990s, but doesn't say what implication this will have for interest rates in the United States." U.S. interest rates will probably

a) rise because the world interest rate will rise

b) fall because the risk premium with Japan should fall

c) fall because Japan will not be able to buy as many U.S. exports

d) fall because inflation in the U.S. should rise as higher Japanese consumption demand bids up U.S. prices