1. A wage-price spiral can occur when: a. there is unemployment

1. A wage-price spiral can occur when: a. there is unemployment and an increase in money supply.
b. there is unemployment and low aggregate demand in the economy.
c. there is full-employment and low aggregate demand in the economy.
d. there is full-employment of resources and an increase in money supply.
e. there is unemployment and a decrease in money demand.
2. It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?
a. Sell dollars for foreign currency
b. Buy dollars with foreign currency
c. Lower interest rates
d. None of the above
3. A decrease in the expected exchange rate E$/£ecauses:
a. no change in the spot exchange rate.
b. an increase in the rate of return on pound in the short run.
c. an increase in the rate of return on dollar in the short run.
d. a decrease in the rate of return on pound in the long run.
e. a pound depreciation and a dollar appreciation.

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