Suppose that on January 1 the exchange rate between the U.S. dollar a Suppose that on January 1 the exchange rate betwee

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255 Paper 3
Answer the following:

1. ​Suppose that on January 1 the exchange rate between the U.S. dollar and the European
Union euro was $1.40 to buy one euro. On December 31 of that year, a person needed
$1.45 to buy one euro. Over the course of that year, did the dollar appreciate or depreciate
against the euro? Did the change in the exchange rate make it easier or more difficult for
American college students to spend a semester at a European university?
Explain.

2. ​What will happen to the money supply if Jamie withdraws $400 from her checking account and
the required reserve ratio is 5%?

3. ​How does a nation's saving rate, as measured by the marginal propensity to save, affect the
size of the spending multiplier? Explain with both intuition and the formula for the multiplier.