Question

QUESTION 3 10 points Save Answer Select all that are true regarding Quantitative Easing (QE): The risks of QE include uncertainty over inflation expectations since it has never been done and it involves massive increases in the money supply, a lack of incentives to borrow since interest rates are so low for so long, and a disincentive for banks to lend due to regulatory uncertainty QE is expressly designed to depreciate the domestic currency via increases in the supply of the DC, which will decrease the relative price of exports, thus increasing exports while increasing the relative price of imports, thus decreasing imports. Both of these results will increase domestic production (Y), increasing the demand for the factors of production, increasing incomes, and starting a virtuous circle of economic growth QE relies on a reflation of asset prices to provide incentive to asset holders to increase purchases (hence aggregate demand) while adding liquidity to banks so that they will be more likely to lend to the economy QE is a theoretical but largely untested expansionary monetary policy at the zero lower bound of interest rates QUESTION 4 10 points Save Answer Select all of the following that are true: A country can "export" its inflation by appreciating its currency, which is consistent with monetary policy An appreciation of the domestic currency unambiguously increases the profits of domestic firms that have no foreign or export operations An appreciation of the domestic currency reduces the reported profits of multi-national firms domiciled in the domestic country (assume no factor changes) An appreciation of the currency will reduce the GDP of a country

Answer 1

a) Option A, B and C are correct as quantitative easing has been tested in 2008 subprime crisis in the market. that makes option D incorrect.

b) Option A, and D are correct as appreciating the currency will decrease the exports and increase the imports that will decrease the local firms output that makes option B incorrect other options are correct.