which of the following is an assumption of the monetary approach to the exchange rates? A - PPP Holds B - UIRP holds C - prices are flexible D - All of the above E - Only A and C of the above
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which of the following is an assumption of the monetary approach to the exchange rates?
A - PPP Holds
B - UIRP holds
C -
D - All of the above
E - Only A and C of the above
Step by step
Solved in 4 steps
- The benefits of adopting a flexible exchange rate is that, a.in response to shocks to the demand for Australian exports, the value of the currency would adjust to moderate these effectsb. changes in the interest rate will have no effect on the exchange rate that is determined in the foreign exchange market c.the exchange rate can be more volatile d. an economy will be able to well predict the prices of exports and imports Why A is the correct answer? What is meant by a flexible exchange rate?True/False and Explain The exchange rate between two countries can be thought of as unrelated to any economic variables.Controls on imports and/or foreign exchange dealing has been one of the arguments used in maintaining fixed exchange rate. What problems might arise if the government were toadopt this method of maintaining a fixed exchange rate?
- Consider a floating exchange rate regime. How does higher government purchases affect output and interest rate in equilibrium? Answer and discuss with the help of the diagram given (e.g., show what curves will shift, label curves and axes correctly). Consider a fixed exchange rate regime. How does higher government expenditure affect output and interest rate in equilibrium? Discuss with the help of the diagram (e.g., show what curves will shift, label curves and axes correctly). Are your conclusions in (1) and (2) consistent with Mankiw's conclusion using the IS-LM diagram drawn in exchange rate-Output axes? Discuss.In the Mundell-Fleming model with a floating exchange rate, what happens to the following variables when there is a decrease in business confidence about the future so firms invest less? Include a graph. a. Aggregate Income b. Exchange Rate: c. Trade Balance:Kenya and Venezuela are major trading partners and the exchange rate between the Kenyan shilling and the Venezuelan bolivar is determined in a flexible foreign exchange market. A. Assume real income increased in Venezuela. Draw a correctly labeled graph of the foreign exchange market for the shilling and show the effect of increased real income in Venezuela on the equilibrium exchange rate for the shilling. B. Will each of the following increase, decrease, or remain the same as a result of the increase in Venezuelan real income? i. Kenya's net exports. Explain. ii. Unemployment in Kenya. Explain. iii. Kenya's long run aggregate supply. C. Assume instead household savings increase in Venezuela. Draw a correctly labeled graph of the loanable funds market in Venezuela and show the effect of the increase in household savings on the equilibrium real interest rate. D. Based on the change in the equilibrium real interest rate identified in Part C, what will happen to…
- Kenya and Venezuela are major trading partners and the exchange rate between the Kenyan shilling and the Venezuelan bolivar is determined in a flexible foreign exchange market. A. Assume real income increased in Venezuela. Draw a correctly labeled graph of the foreign exchange market for the shilling and show the effect of increased real income in Venezuela on the equilibrium exchange rate for the shilling. B. Will each of the following increase, decrease, or remain the same as a result of the increase in Venezuelan real income? i. Kenya's net exports. Explain. ii. Unemployment in Kenya. Explain. iii. Kenya's long run aggregate supply. C. Assume instead household savings increase in Venezuela. Draw a correctly labeled graph of the loanable funds market in Venezuela and show the effect of the increase in household savings on the equilibrium real interest rate. D. Based on the change in the equilibrium real interest rate identified in Part C, what will happen to…What types of money flow out of the US? The direction of net capital flows is determined by what? What is an exchange rate between dollars and Euros? What does it mean when a country’s currency depreciates in the foreign exchange markets? Who wins and who loses in an economy when its currency devaluates in the foreign exchange market? need answer . absuletlyupvote !Assume Switzerland has a one-year interest rate of 3% and that of Ghana is 16%. If the International Fisher Effect (IFE)holds, what would you forecast for the Swiss franc exchange rate with respect with the cedi be for a one-year period? Assume that the initial exchange rate is 5000cedis to a Swiss franc.
- Suppose that the U.S. imposes a tariff on imported automobiles. Answer the following questions in words and with a diagram. (a) What happens to the demand for dollars in the market for foreign-currency exchange? (b) What happens to the real exchange rate? (c) What happens to net exports? Why?An economy is described by the following two equations. Y = C (Y – T) + I (r* ) + G – NX(e) M/P = L(r*, Y) a) If the taxes are raised in this economy, and assuming a floating exchange rate regime; explain what happens to: !?. ii. the exchange rate, and,Suppose, in the New Keynesian open economy model, that there is a negative shock in future total factor productivitv and there are no capital controls. a) Under a flexible exchange rate, what are the equilibrium effects? b) Now suppose that there is a fixed exchange rate. Repeat part(a)
