Homework Answers
If the purchase has to be stopped, then the money printing is a better option and for this, if more supply is then, then there is inflation and this can be achieved by higher interest rates and also devaluation of money allows you to print more as if printing more money makes the money less valued all in all.
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27. At the current fixed exchange rate, the Central Bank of Boblandia needs to buy domestic...
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...
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...
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...
1. Under a floating exchange rate regime with a high degree of capital mobility, in the...
1. Under a floating exchange rate regime with a high degree of capital mobility, in the short run an expansionary fiscal policy will most likely create pressure on: a. the domestic currency to appreciate. b. the domestic currency to depreciate. c. monetary authorities to revalue the domestic currency. d. monetary authorities to devalue the domestic currency. 2. Under a floating exchange rate regime with a high degree of capital mobility, a change in the exchange rate value of domestic currency...
8: Under a fixed exchange rate system, the exchange rate is set by the authorities at...
8: Under a fixed exchange rate system, the exchange rate is set by the authorities at a given level. 9: The nominal exchange rate refers to the amount of local currency that individuals must give in order to buy one unit of a foreign currency. 10: A currency is said to have undergone a nominal depreciation if individuals that are holding that currency must provide fewer units of that currency to buy one unit of foreign currency 11: A currency...
1.Appreciation of the domestic currency will a. increase domestic aggregate demand. b. decrease domestic aggregate supply....
1.Appreciation of the domestic currency will a. increase domestic aggregate demand. b. decrease domestic aggregate supply. c. decrease domestic aggregate demand, and possibly increase domestic aggregate supply. d. cause a deterioration in the trade balance, but have no effect on aggregate supply or demand. 2.In the current exchange rate arrangements of IMF members, a. a substantial number of countries do not have a freely floating exchange rate. b. the European Union countries fix their exchange rates against the US dollar....
Suppose a country wants to maintain its exchange rate at the current level, but it is...
Suppose a country wants to maintain its exchange rate at the current level, but it is worried that market forces will push it down (that is, make the currency less valuable relative to other countries’ currencies). (This is a problem that countries commonly face. A recent examplewas in Russia in 2014-15.) In an attempt to keep the exchange rate from falling, the country’s central bank adopts a tight money policy. 8. Quick review: if the central bank adopts a tight money policy, do interest...
5. Suppose the current spot exchange rate is $1.17 to €1. The dollar is expected to...
5. Suppose the current spot exchange rate is $1.17 to €1. The dollar is expected to appreciate to $1.11 to €1 during the next year. (Assume inflation and risk etc. are the same between the Eurozone and the U.S.) (a) What is the expected currency appreciation gain for the dollar? (Give this as a percentage and round to the nearest 0.1%.) (b) Suppose the interest rate on 1-year corporate bonds in the U.S. is 4%. What is the expected total...
ISuppose that in a country the real demand for liquidity is L(R,Y)-2Y/100R.Assume that the interest rate...
ISuppose that in a country the real demand for liquidity is L(R,Y)-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...
Under fixed exchange rates, the central bank _____________control of the domestic money supply. Select one: a....
Under fixed exchange rates, the central bank _____________control of the domestic money supply. Select one: a. gains b. ensures it can c. has complete d. loses
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...
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...
8: Under a fixed exchange rate system, the exchange rate is set by the authorities at a given level. 9: The nominal exchange rate refers to the amount of local currency that individuals must give in order to buy one unit of a foreign currency. 10: A currency is said to have undergone a nominal depreciation if individuals that are holding that currency must provide fewer units of that currency to buy one unit of foreign currency 11: A currency...
ISuppose that in a country the real demand for liquidity is L(R,Y)-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...
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