The corners hypothesis argues that policymakers should: Select one: a. abandon fixed exchange rates altogether. b. abandon flexible exchange rates altogether. c. avoid hard-peg regimes and fully flexible exchange rate regimes. d. avoid intermediate exchange rate regimes in favor of hard pegs or a free float.
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- Can you help me for question (d), please? In Krugman’s speculative attack model: (a) What is the shadow exchange rate? Why does it increase over time? (b) Why does the speculative attack occur at exactly the time the shadow exchange rate equals the fixed exchange rate? (c) Why is there no jump in the exchange rate when the speculative attack occurs? (d) How can the model be modified so a jump does take place when the speculative attack occurs?(a). Use the DD-AA model to examine the effects of an one-time rise in the foreign price level, P* given that the future exchange rate Ee falls immediately in proportion to P*. If the economy is initially in internal and external balance, will its position be disturbed by such a rise in P*? (b). Use the DD-AA model to compare the domestic economic response under flexible and fixed exchange rate regimes to a temporary rise in export demand from foreign countries.In the (flexible price)monetary model ,if a country initially has a stable exchange rate and price level, but then suddenly increases it's money supply growth rate by 10% per year , what happens to it's rate of inflation and rare of depreciation?
- In Krugman’s speculative attack model: a. What is the shadow exchange rate? Why does it increase over time? b. Why does the speculative attack occur at exactly the time the shadow exchange rate equals the fixed exchange rate? c. Why is there no jump in the exchange rate when the speculative attack occurs? d. How can the model be modified so a jump does take place when the speculative attack occurs?Decide if the following statements are true, false or if the veracity is uncertain. Explain your answers. a. An economy subject to shocks should adopt a floating exchange rate regime to stabilize the output level b. With exchange rate depreciation, the domestic interest rates can be maintained lower than the international, given that with foreign currency a foreign investor can purchase more domestic currency. c. In a fixed exchange rate regime, a country can follow an independent monetary policy by using sterilized interventions on the foreign exchange market.under fixed exchange rate system, when a country has highinflation and a balance-of-paymentssurplus, it should ( ) a.tight fiscal policy and expansionary monetary policy B.tight fiscal policy and tightmonetary policy C.expansionary fiscal policyand tight monetary policy
- In the monetary small open-economy model, suppose that money supply equals 100. The money demand function takes the form Md = P • (0.5Y-400r) The foreign price level P* is 1. The equilibrium output Y is 100 and the world interest rate r* is 0.1. a. Determine the nominal exchange rate and the price level. b,Under a fixed exchange rate regime, if output goes up from 100 to 120, what will be the new equilibrium money supply and the price level?c.Under a flexible exchange rate regime, under the same shock in Part b), if the money supply is still 100, what will be the new equilibrium nominal exchange rate and the price level? d.If the goal of the government is to stabilize the price level, would it be preferable to have a fixed exchange rate or a flexible exchange rate regime when there is a change in output?In general, economists divide the world into two types of exchange rate systems: A fixed and floating OB. liberal and conservative O Clong run and short run OD. speculative and risk averseChoose the correct answer and give correct explaination 2. Advantages of a flexible exchange rates include:A. National policy autonomyB. Easier external adjustmentsC. The government can use monetary and fiscal policies to pursue whatever economic goals it chooses.D. All of the above
- Subject: Apply Mundel-Fleming Model Explain with the Mundell-Fleming Model under flexible exchange rate and perfect capital mobility the different chain effects that would be generated if the business confidence index in Chile falls permanently due to changes in the project for a new constitution of the republic. How would the results obtained change if analyzed over long periods of time through an Aggregate Supply (AS) and Aggregate Demand (AD) model?The Mundell-Fleming model takes the world interest rate r* as an exogenous variable. Let’s consider what happens when this variable changes. What might cause the world interest rate to rise? In the Mundell-Fleming model, does the IS* curve shift to the left or to the right when the world interest rate rises? How about the LM* curve? In the Mundell-Fleming model with a floating exchange rate, what happens to aggregate income, the exchange rate, exports, imports, and the trade balance when the world interest rate rises?D. Now suppose the exchange rate is fixed with E=E¯. Explain how, if at all, a fixed exchange rate changes your answers to part (a). Does the fixed exchange rate protect the domestic economy from foreign monetary policy shocks (i.e. changes in Y∗ and i∗)? Why or why not? Explain.