Answers on the Economics 2022

Running head: ECONOMICS
Economics
Name of the student
Name of the university

ECONOMICS2
Table of Contents
Answer 1....................................................................................................................................3
Part a.......................................................................................................................................3
Part b......................................................................................................................................3
Answer 2....................................................................................................................................4
Part a.......................................................................................................................................4
Part b......................................................................................................................................4
Answer 3....................................................................................................................................5
Part a.......................................................................................................................................5
Part b......................................................................................................................................5
Part c.......................................................................................................................................6
Answer 4....................................................................................................................................6
Reference list..............................................................................................................................8

ECONOMICS3
Answer 1
Part a
The value of the dollar basically depends on the strength of the economy which is
known to issue the currency. Economies mostly depends on other economies since the value
of that particular piece of paper depends mostly in the large part on the value of other
currencies. This means that a dollar has the value based on its worth which is relative to the
worth of other currencies (Bade and Parkin 2015). Economics states that when the demand
for something goes up, the price goes up. Therefore, when the demand for dollar will
decrease, the dollar will be losing value since the price will go down. At that time, it means
that people are demanding more of other currencies instead of dollar.
One of the reasons can be the rate of interest. People usually invests in those countries which
offers a higher interest rate. Therefore, when the interest falls in case of dollar, it loses value.
A weaker dollar also means that there is presence of trade deficit. For this reason, it can be
said that the value of a currency of a country usually lies in its worth relative to other
currencies.
Part b
The real interest rate is known to take inflation into account which means that it
adjusts for inflation and known to give real rate of a bond or loan. On the other hand, a
nominal interest rate is referred to that interest rate which does not takes inflation into
account. For this reason, the nominal interest rate is easier to calculate. When the inflation
rate will be zero, at that time the real interest rate will be equal to the nominal interest rate
(Kreps 2019). On the other hand, in case of positive inflation, the nominal interest rate is
found to generally higher compared to the real interest rate since it does not take into account
the value of inflation.