Question

6. Factors and policies that affect the cost of money Aa Aa Warren needs to borrow money to become a software engineer. Suppose that compensation of software engineers is expected to increase. Assuming nothing else changes, this means that if Warren borrows now, his cost of borrowing money is expected to due to the following factor: O Rising compensation of software engineers provokes inflation O Rising benefits of becoming a software engineer O Decreasing preferences for future consumption Which of the following events could decrease the cost of money? The federal deficit increases The country exports more than it imports ® Inflation increases The Federal Reserve purchases Treasury securities held by banks

Please answer the questions.

Answer 1

Question 6:

Answer: Rising compensation of software engineer provokes inflation (Option a)

Reason: This is because as the compensation increases, the spending power increases and as people spend more, the inflation takes place which reduces the value of money.

Question 7:

Which of the following events could decrease the cost of money?

Answer

(b) The country exports more than it imports and

(d) The Federal Reserve purchases treasury securities held by the banks.

Reason: Both these options decrease the cost of money. When the exports are more, a surplus is creates which decreases the cost of money and when the US Fed buys treasury securities through open market operations, the interest rates in the economy decrease.