Why under fixed exchange rate is ineffective, International Economics

Assignment Help:

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.


Related Discussions:- Why under fixed exchange rate is ineffective

Effects of a rise in the interest rate, Q. Discusses the effects of a rise ...

Q. Discusses the effects of a rise in the interest rate paid by euro deposits on the exchanger rate.   Answer: For a known U.S. interest rate and a given expectation wi

Example of zero-tariff free trade policies, Q. Presumably, since the Unite...

Q. Presumably, since the United States is a large country in many of its international markets, a positive optimum tariff exists for this country. It follows thus that when any l

Compare and contrast economic regions, Compare and contrast China's newest ...

Compare and contrast China's newest economic regions: the Special Economic Zones (SEZs), Open Cities, and Open Coastal Areas. What is the purpose of each regional type? Show how e

Explain u.s and european foriegn exchange flow chart, Us and European Forie...

Us and European Foriegn Exchange Flow chart Answer: The figure explicate how the money markets of two countries are linked through the foreign exchange market. The financial

Bank failure may not be limited to banks, Q. "Bank failure may not be limit...

Q. "Bank failure may not be limited to banks that have mismanaged their assets." Explain why. Answer: A sound bank countenanced with the wholesale loss of deposits is likely to

INTERNATIONAL TREAD, WHATE IS THE PROPERTY OF OFFER CURVE OF A COUNTRY

WHATE IS THE PROPERTY OF OFFER CURVE OF A COUNTRY

Criticism against hechscher-ohlin type trade theories, Criticism against He...

Criticism against Hechscher-Ohlin type trade theories is explained below: The foremost criticism leveled against Hechscher-Ohlin type trade theories are that they views compara

Effects of a rise in real domestic money demand, Q. Using the AA - DD fra...

Q. Using the AA - DD framework, compare the effects of a rise in real domestic money demand under flexible and under fixed exchange-rate regimes. Answer: Under floating an i

Economic problems, The Republic of Ireland has had colossal economic proble...

The Republic of Ireland has had colossal economic problems for many years. On the other hand, in the last two decade, the nation has experienced a thriving economy and has becom

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