Homework Answers
c. If a country wants to maintain its official rate equal to its fundamental value, then when the foreign country raises its money supply then the country should also raise its money supply as it will lead to reduction in the rate of interest in the economy when the rate of interest in other countries is also falling. This will equate the official rate with its fundamental value. An increase in money supply in all the economies will increase the level of aggregate demand in all these economies and thus leads to inflation worldwide.
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So, if a country wants to maintain its official rate equal to its fundamental value, what must it do when the foreign c...
What happens to the fundamental value of a country's exchange money supply in a fixed-exchange-rate system? Does th...
What happens to the fundamental value of a country's exchange money supply in a fixed-exchange-rate system? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value? rate when it raises its а.
What happens to the fundamental value of a country's exchange money supply in a fixed-exchange-rate system? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value? rate when it raises its а.
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...
1. Suppose that PPP holds between Japan (the home country) and the US (the foreign, starred count...
1. Suppose that PPP holds between Japan (the home country) and the US (the foreign, starred country), so that in logs: se+pi-P-0 Also suppose that UIP holds. Money demand in Japan is given by: and in the US by (a) Derive the fundamental equation of the monetary model of the (log) exchange rate. (b) Suppose that the relative money supply in logs is given by m -m, and that = 0.5 + 0.82t-1 + Eg, tencie with mean zero. Solve...
Suppose that velocity of money is constant, the expected inflation rate is equal to the actual...
Suppose that velocity of money is constant, the expected inflation rate is equal to the actual inflation rate, and the expected real interest rate is 4%. Answer the following questions. Justify your answers. Does the quantity theory allow for money to be used for assets and risk diversification purposes? When the growth rate of money supply is 7% and the growth rate of real GDP is 3%, what is the nominal interest rate? Let the growth rate of money supply...
43. Chapter ma2pe08r, Section .323, Problem 024 (ID: 024.32.3- MC- MANK08) If a country raises its...
43. Chapter ma2pe08r, Section .323, Problem 024 (ID: 024.32.3- MC- MANK08) If a country raises its budget deficit, then net capital outflow ts currency shifts right in the market for fi O a. rises, so the supply of i reign-currency exchange b. rises, so the demand for its currency shifts right in the market for foreign-currency exchange O c. falls, so the supply of its currency shifts left in the market for foreign-currency exchange. d. falls, so the demand for...
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...
What happens when the price level rises? a. Interest rates rise, so firms increase investment. b. Interest rates...
What happens when the price level rises? a. Interest rates rise, so firms increase investment. b. Interest rates rise, so firms decrease investment. c. Interest rates fall, so firms increase investment. d. Interest rates fall, so firms decrease investment. 44. Which of the following shifts money demand to the left? a. an increase in the price level b. a decrease in the price level c. an increase in the interest rate d. a decrease in the interest rate 45. If the world real interest rate exceeds the Canadian real interest...
Question 3 This question considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth...
Question 3 This question considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth rate is currently 4% and its inflation rate is 2%. Canada's money growth rate is 6% with 3.25% inflation rate. The world real interest rate is 0.75%. For the following questions, use the conditions associated with the general monetary model. Treat Mexico as the home country and define the exchange rate as Mexican pesos per Canadian dollar, E/cS. a. Calculate the growth rate of...
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...
Currency speculation takes place when Multiple Choice the exchange rate at which a foreign exchange dealer...
Currency speculation takes place when Multiple Choice the exchange rate at which a foreign exchange dealer will convert one currency differs on a particular day. the growth in a country's money supply exceeds the growth in its output, leading to price inflation. the purchase of securities in one market are immediately resold in another to profit from a price discrepancy. there is a simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. there...
What happens to the fundamental value of a country's exchange money supply in a fixed-exchange-rate system? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value? rate when it raises its а.
What happens to the fundamental value of a country's exchange money supply in a fixed-exchange-rate system? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value? rate when it raises its а.
1. Suppose that PPP holds between Japan (the home country) and the US (the foreign, starred country), so that in logs: se+pi-P-0 Also suppose that UIP holds. Money demand in Japan is given by: and in the US by (a) Derive the fundamental equation of the monetary model of the (log) exchange rate. (b) Suppose that the relative money supply in logs is given by m -m, and that = 0.5 + 0.82t-1 + Eg, tencie with mean zero. Solve...
43. Chapter ma2pe08r, Section .323, Problem 024 (ID: 024.32.3- MC- MANK08) If a country raises its budget deficit, then net capital outflow ts currency shifts right in the market for fi O a. rises, so the supply of i reign-currency exchange b. rises, so the demand for its currency shifts right in the market for foreign-currency exchange O c. falls, so the supply of its currency shifts left in the market for foreign-currency exchange. d. falls, so the demand for...
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...
Question 3 This question considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth rate is currently 4% and its inflation rate is 2%. Canada's money growth rate is 6% with 3.25% inflation rate. The world real interest rate is 0.75%. For the following questions, use the conditions associated with the general monetary model. Treat Mexico as the home country and define the exchange rate as Mexican pesos per Canadian dollar, E/cS. a. Calculate the growth rate of...
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...
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