What monetary measures keep current exchange rate constant, International Economics

Assignment Help:

Q. Suppose E is fixed at E0 and that the asset markets are in equilibrium. Suddenly output rises. What monetary measures keep the current exchange rate constant given unchanged expectations about the future rate?

 Answer:

  • Since output rise demand for domestic money raises this raise in money demand usually pushes the domestic interest rate upwards. To avoid appreciation of home currency given E0 is predictable the central bank buys foreign assets in foreign exchange market.
  • This eliminates surplus demand for domestic money because the central bank issues money to pay for the foreign assets it buys.
  • The bank raises the money supply in this way until asset markets clear with E = E0 and R = R*.

Related Discussions:- What monetary measures keep current exchange rate constant

Excessive current account surpluses, Q. Why do governments prefer to avoid ...

Q. Why do governments prefer to avoid excessive current account surpluses? Or, why are growing domestic claims to foreign wealth ever a problem? Answer: On behalf of a given l

Why do we observe the leontief paradox, Q. Why do we observe the Leontief ...

Q. Why do we observe the Leontief paradox? Answer: There are several possible answers that they may be categorized into three groups. One would argue that the theory or model

Comparative advantage in the land-intensive product, Q. Factor-intensity r...

Q. Factor-intensity reversals define a situation in which the production of a product can be land-intensive in one country, and relatively labor intensive in another ( at given re

What do you think about international, Q. What do you think about int...

Q. What do you think about international? Answer: A prescribed procedure whereby a country is able to seek international legal authorization to temporarily stop paying i

International trade in assets make both countries better off, Q. Ho...

Q. How can international trade in assets make both countries better off? Answer: By permitting them to reduce the riskiness of the return on their wealth and by allowin

Rasons for economic miracle of east asian countries, Q. Illustrate the rea...

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

Explain the difficulties in naming the new european currency, Q. Expl...

Q. Explain the difficulties in naming the new European currency. Answer: Amongst the reasons: Maintenance the name ECU would be misleading the ECU depreciated sharply ag

What are predictions for the long run of monetary approach, What are the pr...

What are the predictions for the long run of the Monetary Approach? Answer:     Money supplies- Known the equations

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd