Macroeconomics Assignment

MACROECONOMICS ASSIGNMENT 1
MACROECONOMICS ASSIGNMENT
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MACROECONOMICS ASSIGNMENT 2
Question1
a.
The dollar losing its value means that it has dropped the rate at which it is exchanged with other
foreign currencies. (Bénétrix, Lane and Shambaugh 2015, p.S98). The dollar is said to have
depreciated against the other foreign currencies. People say the dollar has lost its value due to the
explained reasons below.
When investors from other countries prefer to variegate their investments with assets of other
currencies other than the dollar. This is a choice of the foreign investors but it may be influenced
by more attractive returns in the other countries having a higher currency value. This makes
people who use the dollar to say the dollar has lost its value since investors prefer it in
diversifying their portfolios (Staszczak2015, p.175).
When the country’s debt makes the government to either increase the taxes or reduce its
spending. The government can decide to come up with such policies to restrict spending and
dampen economic growth and hence investors find higher returns in different countries. This
implies that the dollar currency has depreciated allowing the country to have a large debt. If the
country has a trade deficit, it has more dollars going out than coming in, and that creates debt.
The foreign currency markets get flooded with dollars, and the dollar gets weaker. This has the
self-balancing effect that a weaker dollar makes the exports sell better, and it also makes imports
more expensive so traders buy fewer imports by supply and demand.
When the country prints more money increasing the money supply in the market: This causes too
much money to chase after a few available commodities in the nation. The scarcity of the money
gets lost and this makes the supply of the money to increase. Increased supply of money in the

MACROECONOMICS ASSIGNMENT 3
nation reduces the value of the dollar currency. This makes people conclude that the value of the
dollar has decreased. When money is rare it would be worth a lot hence the dollar increases its
value.
When the demand of the dollar goes down compared to other currencies in the trading currency
markets: Currency traders change money from one currency to another. And the currency that
happens to be more in demand among currency traders goes up relative to other currencies.
When comparing the number of goods and services a dollar can purchase within the trading
periods: If it purchases fewer goods and services as compared with the previous trading period,
then it is said to have lost its value. We determine the value of a dollar by assessing the number
of goods or services it can purchase. Consumer Price Index is used to solve the number of goods
that a dollar can purchase. It compares the number of goods and services in the last period with
the current period.
b.
Interest rates are very vital as part of the financial economy. They help in the evaluation and
comparison of different kinds of investments and loans in different periods of time. The real
interest rate is the rate of interest that is modified to do away with the result of the causes of
inflation (Taylor and Wieland 2016, p.147). This rate shows the real yield of lending money or
the real cost of borrowing money over time. When the true rates of inflation are known, the real
interest is not predictive.
The nominal interest rate shows no corrections should be done on the impact of inflation. This
indicates only the real amount a borrower should pay after getting any loan. Advertisements on
bonds, loans, and bank accounts show only the nominal interest rates. Before inflation is

MACROECONOMICS ASSIGNMENT 4
accounted into, a consideration of the nominal rates is done. When the nominal rates are low
consumers are encouraged to take more loans and increase their expenditure (Laubach and
Williams 2016, p.57).
Real interest rates are more important than the nominal interest rate because they attract investors
to take more risk in the market. Nominal interest rates don’t adjust for inflation. Inflation should
be adjusted to reflect the direct proportionality with the rate of interest.
Question2
a.
It is always said by people that a period of reduced economic activity is when a neighbour loses
their jobs and a major economic contraction is when you lose your own job. An economic
depression is when the economy is going through a great downfall. It mostly results from an
undesirable activity usually on the basis Gross Domestic Product (Karabarbounis and Neiman
2013, p.61).
When controlling prices and wages: Wages and prices are not allowed to be reduced by the
companies when the government is in control of them. The companies or businesses may have to
get dismissed for the consumers to survive.
Consumers can lose confidence: When consumers lose confidence in the existing economy, they
cannot really outlive. They may be forced to change the way of spending and eventually the
demand decreases. Signals like the worsening of rates of unemployment, high rates of inflation,
property sales decline and credit cards increase.