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Running head: ANSWERS TO QUESTIONS 1

Answers to Questions

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ANSWERS TO QUESTIONS 2

Answers to Questions

Questions 1 and 3 on Page 414

Question 1

The aggregated demand curve illustrates the impacts of the price level outputs. It further

provides combinations for P and Y, which ensures equilibria for goods in the financial markets

(Balasubramaniam, 2019). Therefore, when P drops, money supply rises and causes interest rates

to decrease. The fall in interest rates leads to a rise in investment, production, and demand.

Eventually, the drop of P contributes to an increase in Y, and the AD curve slopes upwards

hence representing an equilibrium level.

Question 3

With an increase in M, the LM curve shifts downwards, and interest rates fall. This aspect

contributes to a rise in investment and demand. Consequently, firms begin responding to the

increase by raising their production levels (Entis, 2014). In this regard, an increase in M

automatically causes a shift of the AD to the right. Similarly, AD's movement to the left is an

indication that at a regular price, the quantity of GDP demanded has decreased. It is

demonstrated that real GDP increases along the AD curve as the prices fall and the AD slopes

downwards. Notably, this aspect causes a movement along the AD curve.

Questions 1 (a-d) on Page 415

Question (a)

The purpose of Fed purchasing bonds was to take control over money supply in the U.S.

economy. More money supply will lead to a rise in consumer spending. Precisely, the increase

ANSWERS TO QUESTIONS 3

will cause the AD curve to shift to the right. This aspect implies that a greater money supply

leads to a drop in interest, hence initiating more spending. The result is an increase in AD.

Question (b)

Interest rates are usually affected by Open Market Operations when Fed purchases

treasury and mortgage bonds. This aspect leads to the increase in prices and falling of interest

rates. This growth in prices leads to inflation because more money is in circulation, but its value

remains low.

Question (c)

When the value of the dollar depreciates, the amount of goods and services purchased

from a foreign country decreases (Little, 2019). This aspect implies that the dollar is trading

much lower than the currency of the foreign nation. In the case of the Fed, the prices for

imported goods will rise. This phenomenon is caused by the fact that consumers have to pay

more for imports as opposed to exports. Respectively, exports would decrease due to the

increased price of imports.

Question (d)

Many of the businesses worry about the fluctuations in the value of the dollar that would

otherwise affect the importation and exportation of goods. Additionally, different market and

financial risks would determine the decision of such businesses on whether to invest, borrow or

hire.

Questions 1 and 3 on page 451

Question 1

ANSWERS TO QUESTIONS 4

The changes in relative prices caused by appreciation will increase the export value in the

U.S. exports and decrease the imports value. This situation implies that appreciation of the dollar

leads to an increase in the relative prices of domestic goods and services. On the other hand, the

comparable prices for foreign products drop significantly. Overall, a weak local currency will

stimulate exportation, thus making imploration expensive.

Question 3

The Fed reserve will not raise interest rates because more people have access to cheaper

credit and much money is in circulation. During this time, consumers have enough money to

spend, an aspect that leads to economic rise and inflation (Petroff, 2018). Correspondingly, as the

interest rates begin to rise, the majority of consumers start saving since the returns from their

savings at this particular time will be higher.

Questions 1 and 3 on page 451

Question 1

The U.S. GDP heightened to $ 1.35 trillion, which had 6.9 percent of the value accounted

for by the digital economy. Notably, by comparing it with the traditional industries in the U.S., it

was established that the digital economy’s position was lower as compared to the scientific,

professional and technical services, which cumulatively accounted for 7.4 percent of the U.S.

GDP (“Digital Economy”, 2019). However, the figure was found to be slightly higher when

compared to the wholesale trade, which had 6.0 percent. Furthermore, the digital economy

supported more jobs as compared to any other industry and had the majority of its employees

earning highly to a tune of $ 132, 223 annually.

ANSWERS TO QUESTIONS 5

Questions 3

The controversy was China's central bank devaluing the Yuan to 2% value of the U.S.

dollar to allow bolstering their exports and improve their currency value (Liu, 2018). China has

since opted out of the practice amidst the rising tensions of trade wars between the U.S. and

China. The U.S. has objected China’s policy and promised to impose more tariffs on their goods

if the policy would be restored.

ANSWERS TO QUESTIONS 6

References

Balasubramaniam, K. (2019). How do the Fed's operations affect the U.S. money supply?

Investopedia. Retrieved from https://www.investopedia.com/ask/answers/0

Digital Economy Accounted for 6.9 Percent of GDP in 2017. (2019, April 4). U.S. Bureau of

Economic Analysis (BEA). Retrieved from https://www.bea.gov/news/blog/2019-04-

04/digital-economy-accounted-69-percent-gdp-2017

Entis, L. (2014). Despite access to credit, many business owners are reluctant to take

ondebt. Entrepreneur. Retrieved from https://www.entrepreneur.com/article/235

Little, K. (2019). How a strong vs. weak dollar affects U.S. jobs. The Balance. Retrieved from

https://www.thebalance.com/strong-dollar-or-weak-dollar-which-is-best-3141203

Liu, L. (2018). Why devaluing yuan is a no-no for China amid US trade war fears. South China

Morning Post. Retrieved from

https://www.scmp.com/news/china/economy/article/2141443/why-devaluing-yuan-no-

no-china-amid-us-trade-war-fears

Petroff, E. (2018).The Fed's tools for influencing the economy. Investopedia. Retrieved from

https://www.investopedia.com/articles/economics/08/monetary-policy-recession.asp

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