Federal reserve bank engages in a temporary decrease

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1) If Denmark wished to keep its exchange rate with the euro fixed, what monetary policy options are available to lower unemployment in the short run?

  • Denmark has all the options available to it, because domestic monetary policy is conducted inside the nation and has no bearing on its international variables.
  • Traders would realize that any monetary policy actions taken inside a nation would improve economic conditions without affecting international variables.
  • Denmark cannot use any monetary policy that would cause its short-run exchange rate to depreciate against the euro.
  • Denmark's monetary action would restore confidence and help keep its currency stable.

2) Suppose a country has decided to peg to the dollar. Explain what will need to happen if the Federal Reserve Bank engages in a temporary decrease in money supply.

Reference no: EM131395453

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