Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Chapter 13, Problem 11RQ
To determine
To know: Reason for country’s limited ability to change money supply under a fixed exchange rate and ways to pursue
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Please explain the managed floating exchange rate regime. How can the monetary authorities prevent effects of these exchange rate regime on money supply level. Why the most of the emerging countries prefer to use this policy?
Why is it that in a pure, flexible exchange rate system,the foreign exchange market has no direct effect onthe money supply? Does this mean that the foreignexchange market has no effect on monetary policy?
Empirical studies find that exchange rates are much more variable than inflation differentials. How can we explain this empirical result?
Chapter 13 Solutions
Macroeconomics (9th Edition)
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- How would a contractionary monetary policy affect the exchange rate, net exports, aggregate demand, and aggregate supply?arrow_forwardWhat is the difference between a floating exchange rate, a soft peg, a hard peg, and dollarization?arrow_forwardWe learned that changes in exchange rates and the corresponding changes in the balance of trade amplify monetary policy. From the perspective of a nations central bank, is this a good thing or a bad thing?arrow_forward
- Consider a small open economy that fixes its currency to gold. This country can freely conduct domestic monetary policy to respond to domestic unemployment and inflation conditions only if it also imposes controls on capital mobility. True or False? Explain. (macroeconomics)arrow_forwardCan you think of any major disadvantages to dollarization? How would a central bank work in a country that has dollarized?arrow_forwardEmpirical studies find that exchange rates are much more variable then inflation differentials. How can you explain this empirical result? Thanks.arrow_forward
- Explain these statements a) “In a flexible exchange rate system with perfect capital mobility, expansionary fiscal policy will always crowd out net exports.”d) “A central bank may not be able to successfully stabilize the economy since monetary policy has long and variable outside lags. But if the central bank knew the exact length of the outside lag, active monetary stabilization policy would always be successful.arrow_forwardConsider a country that adopts the fixed exchange rate system and uses monetary policy to sustain the fixed exchange rate. To counter a speculative attack on its currency, the central bank must tighten monetary policy.Answer true, false, or uncertain. Please briefly explain your answrarrow_forward(a) There are two countries in the world, Australia and Japan. Suppose that the central bank of Australia lowers the real interest rate, while the central bank of Japan raises the real interest rate. In this case, the nominal exchange rate (Yen/Dollar) increases. Answer true or false. Please briefly explain your answer. (b) Argentina is an open economy. Suppose that Argentina fixes the value of their currency to US dollars. If Argentina experiences hyperinflation, it can stabilize inflation by using its monetary policy freely. Answer true or false. Please briefly explain your answer.arrow_forward
- In the case of incomplete capital movements in the flexible exchange rate system, explain the effectiveness of a "constricting" monetary policy by drawing, for the situation where the demand for money is more sensitive to interest than capital movements.arrow_forwardThe Zambian economy has been facing escalating inflationary amid weakening of the Zambian Kwacha. In an attempt to arrest the situation, Dr. Kalyalya and his Monetary Policy Committee have been tightening monetary policy through rising the policy rate and statutory reserve. Assuming the Zambian can be modelled using the IS-LM-BOP Model, discuss and show the effects of these actions on the Zambian Economy under the current Exchange Rate Regime and External Sector policies.arrow_forwardThe reason the country of Ecuador has adopted the use of the US dollar for transactions within the country is a. to be able to lower taxes b. to increase government revenues c. to credibly commit to minimize inflationary pressures in the country d. to be able to effectively implement monetary policyarrow_forward
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