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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.
Q. What are the three main reasons why governments sometimes chose to devalue their currencies? Answer: 1. Permit the government to fight domestic unemployment despite the
Q. Is Europe an optimum currency area? Answer: Yes the area's economy is strongly integrated with its own: most EU members export as of 10 to 20 percent of their output
Q. Explain Tobin's idea of "Don't put all your eggs in one basket." Answer: The idea of diversification advanced with Tobin in his Attitude Towards Risk as well as Por
Q. What is the real exchange rate between the dollar and the euro equal to? Answer: Let actual dollar/euro exchange rate q$/ENominal exchange rate E$/EPrice of an unchan
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tion..What is the range of gross barter terms of trade ?
Q. Explain why East Asian countries have done so well relative to South American countries. Answer: Generally the reasons are less moral hazard less government debt to forei
Analyze the effects of an increase in the European money supply on the dollar/euro exchange rate. Answer: The major points are: A raise in the European money supply will reduc
TERMS OF TRADE MEANING AND NET BARTER TERMS OF TRADE MEANING TABLE DIAGRAM
Identify and explain the three basic economic question that the group of survivors will have to answer everyday
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