Exam 15: Exchange Rate Systems and Currency Crises

A nation realizes external balance when its current account is in equilibrium, i.e.neither a trade balance nor a trade deficit.

A problem that economic policy makers confront when attempting to promote both internal and external balance for the nation is that monetary or fiscal policies aimed at the domestic sector also have impacts on

Suppose a central bank prevents an appreciation of its currency by intervening in the foreign exchange market and selling its currency for foreign currency.Other things equal this also causes the

Suppose the United States has a fixed exchange rate, and it faces domestic inflation and a trade surplus.Assuming it desires overall balance, if the United States revalues the dollar, other things equal one would expect which of the following to occur?

Expenditure-switching policies alter the level of total spending (aggregate demand) for goods and services produced domestically and those imported.

Given an open economy with high capital mobility and fixed exchange rates, suppose an expansionary fiscal policy is implemented to combat recession.The initial and secondary effects of the policy cause aggregate demand to increase, thus strengthening the policy's expansionary effect.

Expenditure-switching policies include fiscal policy and monetary policy.

Exhibit 15.1 At the Plaza Accord of 1985, the Group-of-Five nations agreed to drive the value of the dollar downward (i.e., depreciation) so as to help reduce the U.S. trade deficit. Answer the following question(s) on the basis of this information. -Refer to Exhibit 15.1.The Federal Reserve might refuse to support the accord on the grounds that when helping to drive the dollar's exchange value downward, the required policy may also cause

Nations have typically placed greater importance to the goal of internal balance than to the goal of external balance.

With a fixed exchange rate system and high capital mobility, internal balance is most effectively achieved by using

Which of these policies are expenditure-changing policies?

The Bonn Summit of 1978 and Plaza Accord of 1985 are examples of international policy coordination.

Which of the following is an example of an expenditure-increasing policy?

The Group-of-Five (G-5) nations include Japan, Germany, China, and Australia.

Which of the following is an example of an expenditure-reducing policy?

In a closed economy, which of the following will cause the economy's aggregate demand curve to shift to the right?

A nation experiences overall balance if it achieves

The appropriate expenditure-switching policy to correct a trade surplus is

Fiscal and monetary policies are generally used to combat domestic recession and inflation and have secondary effects on the balance of payments.

Given an open economy with high capital mobility, under a system of managed-floating exchange rates with heavy exchange rate intervention