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Exchange Rate and Federal Funds Rate

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Is it false that the influence that FED policies have on excess reserves makes a difference?

Is it true that international trade tends to equalize prices of goods and services around the world?

Is it false that an increase in U.S. prices increases the supply of dollars and causes an appreciation in the exchange rate of the dollar?

Is it false that the Federal Funds rate is the interest rate banks charge each other?

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Solution Summary

This solution explains if each of the macroeconomics questions listed is true or false. An explanation is also given for each question.

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Is it false that the influence that FED policies have on excess reserves makes a difference?

FALSE. It does make a difference. The policies the FED has on excess reserves does make a big difference. During times of inflation or when there is an imminent recession, the FED lowers the reserve requirements, and this keeps more money in the economy, which puts downward pressure on inflation, helping the economy. When the FED wants to contract the economy, they again ...

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