Why under fixed exchange rate is ineffective, International Economics

Q. Explain why under fixed exchange rate, monetary policy is ineffective whereas under floating exchange rate it is effective in rising output.

Answer:  In floating by purchasing domestic assets the central bank cause an initial excess supply of domestic money that concurrently pushed the domestic interest rate downward and weakens the currency.  Though under fixed exchange rate the central bank will oppose any tendency of the currency to depreciate by selling foreign assets for domestic money and consequently removing the initial excess supply of money its policy move has caused.

Posted Date: 6/27/2013 3:58:54 AM | Location : United States







Related Discussions:- Why under fixed exchange rate is ineffective, Assignment Help, Ask Question on Why under fixed exchange rate is ineffective, Get Answer, Expert's Help, Why under fixed exchange rate is ineffective Discussions

Write discussion on Why under fixed exchange rate is ineffective
Your posts are moderated
Related Questions
difference between differencial treatment in reverse andspecial and differencial treatment

Q. Why would you suggest to a government to use a floating exchange-rate regime? Answer: Floating Exchange Rate is an exchange rate in which central banks don't inter

Q. Illustrate the reasons for the economic "miracle" of the East Asian countries between 1960 and 1997. Is it only due to the common Asian practice of industrial policy and busin


Describe the important benefits enjoyed by Indian companies through TRIPs. Elaborate the main objectives of WTO in global economy.

The first African Economists Congress organized by the African Union concentrated on the creation of a monetary union and the introduction of single currency in Africa. (a) Ref

What is mean by opportunity cost model of haberler international treade


Q. Why is the H.O. model called the factor-proportion theory? Answer: The H.O. model survey the limitations and the nature of presumptuous that the sole determinant of compar

Q. Neoclassical and Classical trade theory makes the case that free trade can bring a country to an optimum and economically efficient use of its resources; and therefore is an op