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
Q . Use the following table to demonstrate the significance of macroeconomic policy coordination. Demonstrate that the two governments would have been happier if the two of them h

Q. Explain why the distinction between debt and equity finance is useful in analyzing the response of developing countries to unforeseen events such as recession or terms of trade

Countries are indulged in trade because there are mutual gains from trade. But then, what are these gains which they obtain, and how are these realized? Comparative advantage theor

To answer the following question, please refer to the figure below. Concentrating only at the lower right quadrant, discuss the effects of a change in U.S. expected inflation.

Q. The Metzler Paradox is a special case of the optimum tariff idea. Discuss this assertion. Could the optimum tariff tend to be a high one or a low one in the case where this p

Q. If scale economies were not only external to firms, but were also external to individual sites. That is, the larger the worldwide industry (regardless of where plants or firms

Q. Why did the Fed step in to organize a rescue for Long Term Capital Management (LTCM) in September 1998, rather than simply letting the trouble fund fail? Was the Fed's action

Argus Savings and Loan Association began in 1956 in Hometown. As is typical of savings and loan associations, Argus accepts the savings of individuals and organisations and uses th

Q. Using figures for both the short run and the long run, show the effects of a permanent increase in the U.S. money supply. Try to line up your figures to the short and long run

what is the publication of opportunity cost theory?