Exam 21: Exchange Rate Regimes

An increase in the foreign one- year interest rate expected to occur in, say, two years will, all else fixed, have which of the following effects in a flexible exchange rate regime?

After continuing crises in 1993, the EMS countries:

In a fixed exchange rate regime, an increase in the price level will cause:

Assume that exchange rates are flexible and that the future expected exchange rate in one year is not constant. Suppose that individuals now expect that the domestic central bank will pursue contractionary monetary policy in one year. This expected future monetary contraction will cause which of the following to occur?

Which of the following is an argument of opponents of devaluations?

Assume that exchange rates are flexible and that the future expected exchange rate in one year is not constant. Suppose that individuals now expect that the domestic central bank will pursue expansionary monetary policy in one year. This expected future monetary expansion will cause which of the following to occur?

Which of the following is an advantage of a common currency in Europe?

During the EMS crisis in 1992:

Which of the following will occur in the medium run as a result of a revaluation?

Suppose there are two countries that decide to peg the exchange rate at its current rate, which of the following must be true in the short run?

Explain each of the following and why they might be used: hard pegs, currency boards, and dollarisations.

Suppose the economy is initially operating below the natural level of output. In a fixed exchange rate regime, explain how the economy will adjust to this situation.

Suppose a country that has been pegging its currency is faced with a situation where financial market participants now expect some future devaluation. In such a situation, we would generally expect which of the following to occur?

Based on your understanding of the AS- AD open economy model, a devaluation causes which of the following in the short run?