Exam 20: Exchange Rate Regimes

Suppose foreign exchange markets anticipate a revaluation for country A.Further assume that policy makers in country A will continue to fix its nominal exchange rate.In order to peg the currency at its original level,which of the following must occur?

Changes in which of the following variables will cause the current nominal exchange rate to change?

According to Mundell,countries to constitute an optimal currency area need to satisfy one of the two conditions.Explain these conditions.

Explain exchange rate crisis.

A revaluation causes which of the following to occur in the short run in the AS / AD model?

When we no longer assume that the exchange rate expected to occur in one year is constant,explain what variables affect the current exchange rate in a flexible exchange rate regime.Include in your answer an explanation of how changes in these variables affect the current exchange rate.

Under the Gold Standard,

A devaluation causes which of the following to occur in the medium run?

After continuing crises in 1993,the EMS countries

An increase in the domestic 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?

Assume that policy makers are pursuing a fixed exchange rate regime.Assume that the economy is initially operating at the natural level (i.e.,Y = Yn).Suppose an increase in wealth causes households to increase consumption.This wealth-induced increase in consumption will cause which of the following to occur?

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?

In a fixed exchange rate regime,an increase in the price level will cause which of the following?

Suppose output is above the natural level of output.In a fixed exchange rate regime,explain the two ways the economy can return to the natural level of output.

An adjustment of central parities in the EMS is called a

Use the information provided below to answer the following question(s). The exchange rate between the British pound and the U.S. dollar is 2. In England, the price level is 1.0 and the one-year interest rate is 20%. In the United States, the price level is .8 and the one-year interest rate is 8%. The inflation rate in both countries is zero. -Refer to the information above.The real exchange rate (from the United States' perspective)is

First,briefly explain why the AD curve is downward sloping in a closed economy.Second,briefly explain why the AD curve is downward sloping in an open economy under fixed exchange rates.And finally,briefly compare the size of the slopes of the two AD curves.

For this question,assume that policy makers are pursuing a fixed exchange rate regime and that output is initially greater than the natural level of output.The economy will tend to move toward the natural level of output when which of the following occur?

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

Suppose country A pegs its nominal exchange rate to country B and that country A has a lower inflation rate than country B.In this situation,country A will experience