Exam 28: Fixed or Flexible Exchange Rates

How could exchange rate protection of, for example, 10 percent, be duplicated in its effects across export and import-substitute industries by using tariffs and subsidies instead? Explain. Suppose that you are a firm in an import-substitute industry that is currently receiving less protection than most other import-substitute industries. Would you be in favor of scrapping the existing protection framework and adoption of exchange rate protection as an alternative policy? Explain.

In a situation of imperfect short-term capital mobility between countries, if the BP curve Is flatter than the LM curve for country A, then an internal real sector shock in country A (such as an autonomous increase in real investment spending) will have a __________ Impact on A's national income under fixed exchange rates than under flexible exchange Rates; if the BP curve is steeper than the LM curve for country A, then that internal real Sector shock __________ impact on A's income under fixed exchange rates than under Flexible exchange rates.

If virtually all speculators buy a currency just before what would be the cyclical low points in the currency's value without speculative activity, this speculation is likely to be__________ with respect to its impact on the amplitude of the cycle; if the speculators Sell the currency just before what would otherwise be the high values of the currency During its fluctuations, this speculation __________ in its impact on the amplitude of the Cycle..

The optimal size of international reserves occurs for a country at the point where the

In comparing the size of central bank reserves relative to world imports in the 1948-1972 Period (a relatively fixed exchange rate period) with the same ratio from 1973 onward (a Relatively flexible exchange rate period), the ratio has been __________ in the more Recent period. This result __________ consistent with the theoretical expectation of Economists.