Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 19, Problem 15CQ
To determine
Purchase of Country U’s treasury bills by Countries C and J and its effect over Country U’s economy.
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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)
Describe three ways in which the interest rate changes implemented in an expansionary monetary plan by the Fed would work their way through the economy in order to improve economic conditions. How would changed interest rates affect business, households, governments, and those involved in imports/exports?
The U.S. economy is faltering, so the value of its associated currency, the dollar, is likely to
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Macroeconomics: Private and Public Choice (MindTap Course List)
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- In Belarus, the government doesn’t allow trading of its ruble outside a narrow price range, which greatly overvalues the ruble – there is a price floor on the ruble compared to euros or dollars. Because of the floor, currency trading has dried up – who would want to sell foreign currencies for grossly overpriced Belarusian rubles? A friend of one of my students has a web site designed to overcome rigidities in this market, a sort of Craigslist for currency. People specify amounts they are willing to buy or sell, agree to trade at some price and arrange a meeting place. When they meet, the trade nominally occurs at the official price floor, making the transaction nominally legal; but the person selling rubles makes extra payments to the buyer to lower the price sufficiently so that the trade actually takes place at the equilibrium price. This is one more way in which technology helps markets circumvent imperfections and rigidities. Q: If the Belarusian government increases…arrow_forwardSuppose the Federal Reserve wants to fix the U.S. exchange rate with the yen at $0.008 per yen. If the equilibrium market exchange rate were significantly lower at $0.007 per yen, what would the Fed need to do to maintain the fixed rate of $0.008 per yen? What would be the effect of these actions on the money supply in the U.S.? Explain.arrow_forwardAnswer all parts For the following questions assume that the Fed is committed to price level stability. Initially, the exchange rate is 1.0. The US interest rate starts at 0.15 and the Fed increases the money supply by twenty percent (0.2) reducing the interest rate to 0.01. Assume that the economy completely adjusts after two years. Two years from now, the exchange rate is. 1.2 0.80 1.0 1.10 What is the change in the price level over the next two years 0.20 0.10 0.0 -0.10 Starting from today, what is the change in the interest rate over the next two years -0.10 0.00 0.14 0.10arrow_forward
- The United States monetary base is larger now than at the end of 2007 because the banking system is healthier now than during at the end of 2007. The United States monetary base is larger now than at the end of 2007 because the banking system is healthier now than during at the end of 2007.arrow_forwardDiscuss Monetary policy instruments.arrow_forwardDiscuss THREE monetary strategies currently implemented in the commonwealth of Dominica.arrow_forward
- What are the goals of monetary policy? What are the monetary policy targets? Which target is currently utilized by the Fed? Why doesn’t the Fed use the other one? If American demand for purchases of British goods has decreased, how would you expect the equilibrium exchange rate in the market for dollars to respond?arrow_forwardThe 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.arrow_forwardBased on the table, which of these currency devaluations would result in the largest proportional impact on purchasing power? A Brazilian currency drop of 0.1% in value against American currency for Brazilian consumers. An American currency drop of 0.1% in value against Japanese currency for American consumers. A Thai currency drop of 0.1% in value against Brazilian currency for Thai consumers. A Mexican currency drop of 0.1% in value against Thai currency for Mexican consumers.arrow_forward
- A restrictive monetary policy in Canada is most likely to: Multiple Choice depreciate the international value of the dollar and decrease Canadian net exports. depreciate the international value of the dollar and increase Canadian net exports. appreciate the international value of the dollar and increase Canadian net exports. appreciate the international value of the dollar and decrease Canadian net exports.arrow_forwardSuppose the Bank of Canada contracts the money supply in an effort to reduce aggregate demand by a particular amount, say $10 billion. If Canada was a closed economy, would the amount by which the Bank of Canada would need to reduce the supply of money to accomplish this goal be greater or smaller than the amount it would need to reduce the supply of money if Canada was a small open economy with a flexible exchange rate?arrow_forwardThe 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…arrow_forward
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