Which one of the following statements is the most accurate? O A. Under a dirty float exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O B. Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply. O C. Under a flexible exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O D. Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O E. Under a fixed exchange rate, fiscal policy tools are powerless to affect the economy's money supply or its output.

Which one of the following statements is the most accurate? O A. Under a dirty float exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O B. Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply. O C. Under a flexible exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O D. Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O E. Under a fixed exchange rate, fiscal policy tools are powerless to affect the economy's money supply or its output.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

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If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar and the Chinese yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the people who want to convert dollars to yuan are asking to convert $10 billion per day of dollars into yuan, while the people who are wanting to convert yuan into dollars are asking to convert 36 billion yuan into dollars. What will happen to the size of China’s official reserves of dollars? a. Increase. b. Decrease. c. Stay the same.
2. Suppose a currency is temporarily undervalued by a fixed exchange rate system, such as the international gold standard. Let that currency be the US dollar, and expressed in terms of British pounds. a. Show this disequilibrium using a supply and demand graph. Be sure to carefully label your axes. b. Clearly explain how one could profit by arbitraging in dollars using a bill of exchange. If it helps, you can use a numerical example.
Which type of money is most likely to see its value fluctuate in the foreign exchange market? O a. fiat money O b. commodity money O c. price-indexed money O d. pegged-exchange rate
8. Suppose that last year, the nominal exchange rate between the Japanese yen and the British pound was ¥150.0 per £1.0, one unit of Japanese output cost ¥1300, and one unit of British output cost £8.0.a. What was the real exchange rate between the U.K. and Japan last year, expressed as the cost of British output (i.e. – the quantity of Japanese output that exchanges for 1 unit of British output)? In which country were goods more expensive last year?
(1) In the IS-LM model, how does an increase in money supply affect theIS curve?(2) According to the Impossible Trinity, if an economy wants to allow for free capitalflows as well as to have full control over its currency, which exchange rate systemshould be adopted?(3) In an IS-LM model, if the investors are suddenly less willing to invest, then what effects does this change make to the equilibrium? Explain your intuitions.(4) According to your answers in (3), if the government wants to stabilize the interestrate using monetary policies, how should it behave? If the government, instead, wantsto stabilize the output level using monetary policies, what is your policy suggestion forit?
Question 10 a b and c Assume that there is a free-floating exchange rate. Will the following cause sterling toappreciate or depreciate relative to other currencies? In each case, you should considerwhether there is a shift in the demand or supply curves of sterling (or both) and whichway the curve(s) shift(s). You may assume that the impacts are ceteris paribus, that is,everything else remains the same. Illustrate your answers and give a short explanation interms of currency supply and demand. (a) UK imports increase. (b) UK interest rates rise relative to those abroad.(c) The UK experiences lower inflation than other countries, but with no change in interestrates.
1. In a simple monetary model of the exchange rate, liquidity preference is a constant, L=5 for both the US and Australia. In the US, the price level is 4. In Australia, the nominal supply of money is 150. For the Americans, the exchange rate is 0.8. Find the real output/transactions in Australia. 2. Now the US price level changes to 6. And in Australia, the nominal money demand is 30 and the nominal money supply is 240. Find the new exchange rate and use it to find the rate of AUD appreciation from the 0.8 in the previous question.
Consider avocado trading between you and nber. Your tree grows 100 this year and 10 next year.Nber's tree grows 20 this year and 50 next year.Let the equilibrium exchange rate be v. Consider a different scanerio: Your tree grows 100 this year and 10 next year.Nber's tree grows 20 this year and 60 next year.Let the equilibrium exchange rate be v'. Then v>v'. Hint: you can use your intuition to figure this out without any calculation. A. TrueB. False
PLEASE ANSWER ALL THE QUESTIONS 16. (CLO 6) Explain how changes in exchange rates impact the economy through the aggregate demand- aggregate supply (AD/AS) model. Explain how fluctuations in exchange rates can influence loans and banks. (16.3) 17. Contrast floating exchange rates, a soft peg, hard peg, and merged currency as options that a country’s economy has in terms of managing it’s exchange rate relative to the rest of the world. For each, give a benefit as well as a drawback. (16.4)
Suppose that Germany (country a) and France (country b) do not have foreign currency controls in effect. The total demand for money is always 2,000 goods in Germany and 1,000 goods in France. The fiat money supplies are 100 marks in Germany and 300 francs in France. A. Find the value of each country's money if the exchange rate et is 3. Do the same if et =1. Is one exchange rate more likely than the other? Explain. B. Suppose the exchange rate is 3 and France triples its fiat money stock, whereas Germany prints no new money. How many goods will France gain in seigniorge? What fraction of this seigniorge comes from German citizens?
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