ECB Cuts Rates for Eighth Time, Fed keeps them on hold

Answer the following questions to check your understanding of the story.

1) Why is the Eurozone lowering its policy interest rate but the United States is not?

a) The ECB expects an appreciation of their currency and the Fed doesn’t.

b) The Eurozone inflation rate is lower than the U.S. inflation rate.

c) The Eurozone government wants a rate cut and the U.S. government doesn’t.

d) The Fed expects rising inflation and the ECB doesn’t.

2) How will the Eurozone economy respond to the policy interest rate cut?

The policy interest rate cut eventually ____________.

a) increases the real GDP growth rate and inflation

b) decreases the real GDP growth rate and increases inflation

c) increases the real GDP growth rate and decreases inflation

d) decreases the real GDP growth rate and inflation

3) Why did the euro rise following Christine Lagarde’s statement that the central bank is nearing the end of its rate-cutting cycle?

Christine Lagarde’s statement _______________.

a) increased the expected future euro exchange rate

b) decreased the world demand for Eurozone exports

c) decreased the expected future euro exchange rate

d) decreased the euro interest rate relative to foreign interest rates

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