The Conduct of Monetary Policy and Exchange Rates 1. The purpose of a nominal anchor is to anchor 2. On average, the rate of inflation has the highest reported inflation rate. 3. To maintain its federal funds rate target when the demand for reserves decreases, the Fed must non- borrowed reserves. 4. The Taylor principle states that to reduce , the Fed needs to increase the nominal interest rate than the increase in inflation. 5. A reason not to raise interest rates to burst a bubble is that raising interest rates may cause a 6, Increased trade barriers will cause a country's exchange rate to appreciate or depreciate? 7. According to Purchasing Power Parity, if a country has lower inflation than its trading partners, its exchange rate will s. If $1 costs 0.8 British pounds, and one British pound buys 100 yen, what is the $ price of 1 yen? 9. If a Nestles bar cost $0.50 in the U.S., and it costs 0.75 Swiss Francs in Zurich, what is the exchange rate that equalizes the price in both countries (Law of One Price)? Swiss Franc per $ 10. Assume two countries, Fredonia and Sylvania have equal price levels. The price index in both countries is equal to 100, and the exchanges rates are FI = $1 (F is the Fredonia currency and S is the Sylvania currency). Inflation in Sylvania raises its price index to 150. Using the Law of one price, what is the new price of the Sylvanian currency in Fredonia? That is, how many F per S