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In which case or cases will the government response be the same as in the previous question?
How would a decrease in the money supply of Paraguay affect its own output and its exchange rate with Brazil (currency unit is the real).
For each of the following situations, use the ISLM-FX model to illustrate the effects of the shock. Investors expect a depreciation of the home currency.
How will this increase in investment affect output, interest rates, and the current account?
If policy makers are concerned about the current account deficit, discuss whether stimulatory fiscal policy or monetary policy makes more sense in this case.
Two more states of world appear: Armageddon (A) and Utopia (U). Why does diversification eliminate consumption risk in each case? Explain.
If the country still desires to smooth consumption looking forward from year 1, how much should it borrow in period 1?
If the country desires to smooth consumption, how much should it borrow in period 0? What will the new level of consumption be from then on?
For each of the following shocks, explain how and to what extent each country can trade capital to better smooth consumption.
Some EU countries are keen to exclude Turkey from the EU. What might be the economic arguments for that position?
What will Turkey's capital per worker level k be? Label this outcome point T2 in each diagram. Will Turkey converge to the EU level of q? Explain.
Can A be the same in Brazil as in the United States? If not, compute the level of A for Brazil. What is Brazil's MPK relative to the United States?
How would you depict this shift for a pair of countries in the symmetry-integration diagram that started off just below the FIX line in 1870?
Discuss the debate between states' rights versus centralized authority in the context of the Economic and Monetary Union and the European Central Bank.
The Maastricht Treaty places strict requirements on government budgets and national debt. Why do you think the Maastricht Treaty called for fiscal discipline?
Why you believe these countries were eager to integrate with Western Europe? Do you think policy makers in countries believe that OCA criteria are selffulfillin
One could view United States as a currency union of 50 states. Compare the Eurozone and the United States in terms of the optimum currency area (OCA) criteria.
What steps have been proposed to prevent exchange rate crises? Discuss their pros and cons.
We shall never surrender our peg to the wotan. What would you say to Tufton concerning the merits of each statement?
Why is the home interest rate always higher under a non credible peg than under a credible peg? Why nothing than a shift in investor beliefs can cause a peg?
What is the price level going to be right before reserves run out? Right after? What is the percentage increase in the price level? In the exchange rate?
Describe how fiscal dominance affects the central bank's ability to defend the exchange rate peg.
Compute total reserves for the year 2005. Illustrate this situation on a central bank balance sheet diagram.
What is a lender of last resort and what does it do? If central bank acts as a lender of last resort under fixed exchange rate regime, why are reserves at risk?
What is a currency board? Describe the strict rules about the composition of reserves and domestic credit that apply to this type of monetary arrangement.