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ISuppose that in a country the real demand for liquidity is L(R,Y)-2Y/100R.Assume that the interest rate...
1 Suppose that in a country the real demand for liquidity is L(RY)-2Y/100R·Assume that the 、...
1 Suppose that in a country the real demand for liquidity is L(RY)-2Y/100R·Assume that the 、 interest rate in the foreign country is 24%(R*-0.24),the domestic income is $1000 billion and the domestic price level is P-1.2.As a central banker,you want to keep the nominal exchange rate fixed at E= 1.5. (1):What should be the domestic interest rate?(Answer with a number instead of a percentage) (2):What should the nominal money supply be(in billions)? (3):If the money supply in the foreign country...
The sum of currency and bank deposits at the central bank is called: a. the money...
The sum of currency and bank deposits at the central bank is called: a. the money supply. b. domestic assets. c. the monetary base. d. fractional reserves. Official intervention in the foreign exchange market to defend a fixed exchange rate when the value of the country's currency is under downward pressure causes a. international reserve holdings to rise. b. a downward pressure on the country's interest rates. c.an increase in the liabilities of the central bank. d. the domestic money...
Suppose assets are not perfectly substitutable. In particular, suppose that the domestic country must pay a...
Suppose assets are not perfectly substitutable. In particular, suppose that the domestic country must pay a risk premium given by p=0.0004(B-A), where B denotes the stock of domestic government debt held by the public (not central bank) and A denotes domestic assets held by central bank. Assume that the domestic real demand for liquidity is L(R,Y)= 2Y/500R, the domestic income is 1000 and foreign interest rate is 10%. Assume also that B=900, A=500 and Ms =1000. Finally, suppose that the...
1. What is the short-run effect on the exchange rate of an increase in domestic real...
1. What is the short-run effect on the exchange rate of an increase in domestic real GNP, given expectations about future exchange rates? A.Money demand increases, the domestic interest rate increases, and the domestic currency depreciates. B.Money demand increases, the domestic interest rate increases, and the domestic currency appreciates. C.Money demand decreases, the domestic interest rate decreases, and the domestic currency appreciates. D.Money demand decreases, the domestic interest rate decreases, and the domestic currency depreciates. 2. In our discussion of...
3. Suppose that prices are completely rigid, so that the nominal and the real interest rate...
3. Suppose that prices are completely rigid, so that the nominal and the real interest rate are necessarily equal. Money-market equilibrium is therefore given b L(r,Y). a. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep the interest rate unchanged. i. Does the money supply rise or fall? ii. What happens to consumption and investment? b. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep output...
Consider this Central Bank balance sheet of a country with a fixed exchange rate. In order...
Consider this Central Bank balance sheet of a country with a
fixed exchange rate. In order to maintain the peg, the bank
intervenes in the foreign exchange market and sells $500 of
foreign bonds for domestic currency.
a) As a result of the intervention, has the domestic money
supply increased or decreased?
b) By how much? (no decimals)
c) What must the Central Bank do to sterilize this
intervention?
A. Buy $500 of foreign assets.
B. Sell $500 of foreign...
Suppose the world real interest rate is r* = 3%, the gdp growth rates in the...
Suppose the world real interest rate is r* = 3%, the gdp growth rates in the US and the foreign country are 6%, US monetary growth is μUS = 10%, and foreign monetary growth is μFC = 50%. Find inflation rates in both countries, πUS and πFC, nominal interest rates in both countries, iUS and iFC, and the rate of change in the foreign currency value of the $, ΔE/E. Assume the money demand parameter L is constant in both...
7. According to the theory of liquidity preference, decreasing the money supply will nominal interest rates...
7. According to the theory of liquidity preference, decreasing the money supply will nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will nominal interest rates in the long run. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase 8. If neither investment nor consumption depends on the interest rate, then the IS curve is , and_ policy has no effect on output. A) vertical; monetary B) horizontal; monetary...
27. At the current fixed exchange rate, the Central Bank of Boblandia needs to buy domestic...
27. At the current fixed exchange rate, the Central Bank of Boblandia needs to buy domestic currency. In order to stop needing to purchase domestic currency, which policy option could it enact? a) Either increase nominal interest rates OR devalue the domestic currency b) Either increase nominal interest rates OR revalue the domestic currency. c) Either decrease nominal interest rates OR devalue the domestic currency d) Either decrease nominal interest rates OR revalue the domestic currency. e) It must adopt...
Uni ule government allows the exchange rate to float. a. Lump-sum taxes increase. b. Foreign income...
Uni ule government allows the exchange rate to float. a. Lump-sum taxes increase. b. Foreign income increases. c. Investors expect an appreciation of the home currency. d. The money supply decreases. 2. For each of the following scenarios, assume the economy experiences an exogenous decrease in investment demand. For each case, illustrate the IS-LM-FX diagram and state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Here, we...
1 Suppose that in a country the real demand for liquidity is L(RY)-2Y/100R·Assume that the 、 interest rate in the foreign country is 24%(R*-0.24),the domestic income is $1000 billion and the domestic price level is P-1.2.As a central banker,you want to keep the nominal exchange rate fixed at E= 1.5. (1):What should be the domestic interest rate?(Answer with a number instead of a percentage) (2):What should the nominal money supply be(in billions)? (3):If the money supply in the foreign country...
The sum of currency and bank deposits at the central bank is called: a. the money supply. b. domestic assets. c. the monetary base. d. fractional reserves. Official intervention in the foreign exchange market to defend a fixed exchange rate when the value of the country's currency is under downward pressure causes a. international reserve holdings to rise. b. a downward pressure on the country's interest rates. c.an increase in the liabilities of the central bank. d. the domestic money...
3. Suppose that prices are completely rigid, so that the nominal and the real interest rate are necessarily equal. Money-market equilibrium is therefore given b L(r,Y). a. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep the interest rate unchanged. i. Does the money supply rise or fall? ii. What happens to consumption and investment? b. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep output...
Consider this Central Bank balance sheet of a country with a
fixed exchange rate. In order to maintain the peg, the bank
intervenes in the foreign exchange market and sells $500 of
foreign bonds for domestic currency.
a) As a result of the intervention, has the domestic money
supply increased or decreased?
b) By how much? (no decimals)
c) What must the Central Bank do to sterilize this
intervention?
A. Buy $500 of foreign assets.
B. Sell $500 of foreign...
7. According to the theory of liquidity preference, decreasing the money supply will nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will nominal interest rates in the long run. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase 8. If neither investment nor consumption depends on the interest rate, then the IS curve is , and_ policy has no effect on output. A) vertical; monetary B) horizontal; monetary...
27. At the current fixed exchange rate, the Central Bank of Boblandia needs to buy domestic currency. In order to stop needing to purchase domestic currency, which policy option could it enact? a) Either increase nominal interest rates OR devalue the domestic currency b) Either increase nominal interest rates OR revalue the domestic currency. c) Either decrease nominal interest rates OR devalue the domestic currency d) Either decrease nominal interest rates OR revalue the domestic currency. e) It must adopt...
Uni ule government allows the exchange rate to float. a. Lump-sum taxes increase. b. Foreign income increases. c. Investors expect an appreciation of the home currency. d. The money supply decreases. 2. For each of the following scenarios, assume the economy experiences an exogenous decrease in investment demand. For each case, illustrate the IS-LM-FX diagram and state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Here, we...
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