MyLab Economics with Pearson eText -- Access Card -- for Foundations of Economics
MyLab Economics with Pearson eText -- Access Card -- for Foundations of Economics
8th Edition
ISBN: 9780134518312
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 34, Problem 3IAPA
To determine

To explain:

The factors effecting the appreciation of the dollar and the increase in the official reserves.

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Students have asked these similar questions
If a small country, such as Argentina, attempts to fix its currency exchange rate with the United States,   its inflation rate must be higher than the U.S. inflation rate. its interest rates will move together with the U.S. interest rates. its currency value relative to the U.S. dollar will fluctuate over time. its central bank will have full flexibility in monetary policy actions. it must restrict the flow of funds with the United States.
The 1997 Asian crisis began when speculators attacked baht, the Thai currency. Thailand, like many Asian economies, had a fixed exchange rate system whereby the baht was fixed relative to the US dollar. The country was running substantial balance of payments deficits and was losing reserves as it was defending the exchange rate against the dollar. As markets realized that the government could not sustain the exchange rate any longer, investors shifted to other hard currencies. The Thai stock market index plunged by 50 percent within a year and banks were in danger of collapse as they had loaned funds using inflated assets as collateral. The domino effect also hit the other Asian economies as they were experiencing similar problems. Investors fled from the Philippines, Malaysia, and Indonesia, as expectations of a fall in their exchange rates grew stronger. The authorities in these countries were forced to abandon the exchange rate peg and, at the same time, Taiwan and Singapore also…
An increase in the supply of U.S. dollars by the Federal Reserve will a. raise the value of the dollar because it will stimulate U.S. economic growth b. reduce the value of the dollar because of inflation fears in the United States c. decrease the value of the dollar because it will force other countries to raise their interest rates d. raise the value of the dollar because it will lead to higher U.S. interest rates
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