Question

Consider an open economy in which the central bank targets the interest rate. Fill in the blanks
in the following statement using the options below: If the central bank sells domestic currency
in the foreign exchange market then, ceteris paribus, unless it carries out open market ___ of
government securities the equilibrium budget surplus will ___.
A) (purchases, rise).
B) (purchases, fall).
C) (sales, fall).
D) (sales, rise).

Consider an open economy in which the central bank targets the interest rate. Fill in the blanks
in the following statement using the options below: Decreased public confidence in the
security of bank deposits will, ceteris paribus, cause equilibrium net exports to ___ if the central
bank chooses not to undertake open market ___ of government securities.
A) (rise, purchases).
B) (rise, sales).
C) (fall, purchases).
D) (fall, sales).