Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Chapter 20, Problem 4RQ
To determine
The exchange rate and interest rate move in the same direction in the short run.
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What, then, determines exchange rates in the short run?
A country utilizes a fixed exchange rate. If the central bank were to increase the money supply, what impacts would it have on the economy?
Use a diagram to explain your answer.
Why do interest rates and exchange rates move in the same direction in theshort run?
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- If the central bank were to increase the money supply in a fixed exchange rate regime, what impacts would it have on the economy? Use a diagram to explain your answer.arrow_forwardDoes the level of the exchange rate matter in the long run? Why or why not?arrow_forwardWhy does the demand for foreign currency falls when its price risesarrow_forward
- What are the central bank's functions? How is the exchange rate of the country managed? Do you feel this choice of exchange rate management is beneficial to the country's GDP?arrow_forwardwhere a country which currently uses a fixed exchange rate regime; If the central bank were to increase the money supply, what impacts would it have on the economy? Use a diagram to explain your answer.arrow_forwardUsing words and a graph, explain how the equilibrium in the foreign exchange market takes place. Make sure that, as part of your answer, you refer to the related equation.arrow_forward
- Barbados currently uses a fixed exchange rate regime. If the central back were to increase the money supply, what impacts would it have on the economy? Use a diagram to explain your answer.arrow_forwardWhat is it that determines the relationship between spot and forward foreign exchange rates?arrow_forwardIn the foreign exchange market, how does a change in expected future U.S. exchange rate affect the demand for dollars?arrow_forward
- Differentiate between floating exchange rate and exchange rate?arrow_forwardA country with higher nominal interest rates than its trading partners will see its exchange rate depreciate in value relative to the currencies of its trading partners in the long run. Is this statement true or false? Briefly explain why.arrow_forwardIf the price of one gallon of gasoline goes down from $4.07 per gallon to $3.99 per gallon, how will that affect the value of the US dollar? Why does it affect the value of the dollar?arrow_forward
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