Exam 20: Output, the Interest Rate and the Exchange Rate

Suppose policy makers are pursuing a policy to fix the exchange rate. In such a system with perfect capital mobility, an open market purchase of domestic bonds by the domestic central bank will eventually result in:

In an open economy under flexible exchange rates, contractionary monetary policy in the short run will always cause:

Assume that the interest parity condition holds and that the Australian dollar is expected to appreciate against the pound. Given this information, we know that:

Under a fixed exchange rate regime, the central bank must act to keep:

In 2005, China increased the price of its currency while continuing to pursue a fixed exchange rate. This change in policy is called:

Suppose policy makers in a fixed exchange rate regime decide to peg the exchange rate at a lower level. Such a policy is called:

Assume that policy makers are pursuing a fixed exchange rate regime. Now suppose that a fiscal contraction is implemented. Such a policy will tend to cause which of the following to occur?

In an open economy, we know that individuals must choose between which of the following?

The European Monetary System represented a(n):

In a flexible exchange rate regime, a decrease in the expected future exchange rate will cause:

Suppose the domestic and foreign interest rates are initially equal to 5%. Now suppose the foreign interest rate rises to 7%. Explain what effect this will have on the exchange rate. Also explain what must occur for the interest parity condition to be restored.

Suppose there are two countries that are identical in every way with the following exception. Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose taxes are increased in both countries and rise by the same amount. Given this information, we know that:

A common argument for fixed exchange rates is that they:

Under a "crawling peg" system, a country's exchange rate:

In a flexible exchange rate regime, an increase in the foreign interest rate will cause:

Suppose the domestic and foreign interest rates are initially equal to 4%. Now suppose the domestic interest rate rises to 6%. Explain what effect this will have on the exchange rate. Also explain what must occur for the interest parity condition to be restored.

In a flexible exchange rate regime, an increase in the expected future exchange rate will cause:

Suppose policy makers are pursuing a policy to fix the exchange rate. In such a system with perfect capital mobility, an open market sale of domestic bonds by the domestic central bank will eventually result in:

A monetary expansion in a flexible exchange rate regime will cause:

To what extent can monetary policy be used to affect output in a fixed exchange rate regime? Explain.