QUESTION 8 Imagine the following scenario: The central bank of Neverland ensures that the exchange rate between the Neverland dollar and the U.S. dollar is fixed. Due to a global financial crisis the demand for U.S. dollars goes up and the demand for Neverland dollars goes down. First, the Neverland's central bank spends U.S. dollar reserves to support the peg but then it runs out of reserves. What is most likely to happen next? O A. the Neverland dollar's exchange rate with respect to U.S. dollar (i.e., the price of Neverland dollars in U.S. dollars) will go up O B. the Neverland dollar's exchange rate with respect to U.S. dollar will go down O. the Neverland dollar's exchange rate with respect to U.S. dollar will not change O D. the stock market index of the Neverland stock exchange will go up

QUESTION 8 Imagine the following scenario: The central bank of Neverland ensures that the exchange rate between the Neverland dollar and the U.S. dollar is fixed. Due to a global financial crisis the demand for U.S. dollars goes up and the demand for Neverland dollars goes down. First, the Neverland's central bank spends U.S. dollar reserves to support the peg but then it runs out of reserves. What is most likely to happen next? O A. the Neverland dollar's exchange rate with respect to U.S. dollar (i.e., the price of Neverland dollars in U.S. dollars) will go up O B. the Neverland dollar's exchange rate with respect to U.S. dollar will go down O. the Neverland dollar's exchange rate with respect to U.S. dollar will not change O D. the stock market index of the Neverland stock exchange will go up

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 8DQ

See similar textbooks

Similar questions

What are some of the reasons a central bank is likely to care, at least to some extent, about the exchange rate?
How would a contractionary monetary policy affect the exchange rate, net exports, aggregate demand, and aggregate supply?
Economics Q8 Suppose, on a certain day in February, a speculator observes the following prices in the foreign exchange and currency futures markets: GBP/USD spot: 1.6465 March futures: 1.6425 September futures: 1.6250 December futures: 1.6130 The speculator thinks that the markets are overestimating the weakness of sterling (GBP) against the dollar. How can she act on this view to make a profit? Under what circumstances do her actions lead to a loss?
The U.S. dollar is still considered the most traded and the most stable currency in the world. It is easily converted over to other currencies when trading and is also the official currency of several U.S. territories. However, a strong U.S. dollar has both advantages and disadvantages. One of the advantages that was already mentioned is that the conversion of the U.S. dollar over to other countries is fairly easy and grants it a greater degree of buying power for foreign products. This also makes foreign imports cheaper not to mention investors benefit when engaging in FDI. The disadvantages of a strong U.S. dollar is that it makes it more expensive for foreign countries to import products from the U.S., which negatively affects industries and business owners within that country as a result. It can even negatively affect the U.S. because those that conduct business internationally will technically earn less from foreign sales if their currency is not fully convertible. Overall, even…
The U.S. dollar is still considered the most traded and the most stable currency in the world. It is easily converted over to other currencies when trading and is also the official currency of several U.S. territories. However, a strong U.S. dollar has both advantages and disadvantages. One of the advantages that was already mentioned is that the conversion of the U.S. dollar over to other countries is fairly easy and grants it a greater degree of buying power for foreign products. This also makes foreign imports cheaper not to mention investors benefit when engaging in FDI. The disadvantages of a strong U.S. dollar is that it makes it more expensive for foreign countries to import products from the U.S., which negatively affects industries and business owners within that country as a result. It can even negatively affect the U.S. because those that conduct business internationally will technically earn less from foreign sales if their currency is not fully convertible. Overall, even…
Which of the following is likely to occur for the United States, if the US dollar loses strength relative to the Japanese yen, ceteris paribus? A- Aggregate demand will decrease (shift left) B- Aggregate demand will increase (shift right) C- Aggregate supply will increase (shift right) D- Aggregate supply will decrease (shift left)
With reference to the euro/sterling exchange rate, explain two factors in the UK economy which may lead to an appreciation of sterling.
QUESTION 4Denmark has chosen a fixed exchange rate for the Danish krone against the euro. At some point in time, the value of the krone reaches the limit of the permitted fluctuation band. The market supply of krone is then 280, while market demand is 230. What will happen? The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will fall. The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will rise. The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will fall. The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will rise.
The economy of Zarland is operating below the full-employment level of output with a balanced budget. answer only 2 and 3 As a result of the interest rate change associated with the expansionary monetary policy, will the supply of Zarland’s currency in the foreign exchange market increase, decrease, or remain the same in the short run? Explain. Based on your answer in part (1), will the value of Zarland’s currency in the foreign exchange market increase, decrease, or remain the same in the short run? Following the change in the value of Zarland’s currency that you identified in part (2), will Zarland’s exports increase, decrease, or remain the same in the short run? Explain.
Questions 12-15: Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. 14. A fully sterilized intervention in the foreign exchange market by the British government is expected to cause: the British money supply to fall. the British money supply to rise. the British money supply to remain unchanged. Britain to gain official international reserves.
Right now (Fall 2022), the US dollar is significantly stronger that it has been during the last few years — it appreciated against most currencies by about 15-20 percent over the period of two years. Looking at two groups of economic agents — US consumers and US producers — how does stronger currency affect any of these two groups? (other things being equal)
The U.S. economy is faltering, so the value of its associated currency, the dollar, is likely to