Exam 20: Exchange Rate Regimes

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 fiscal policy makers increase government spending.This fiscal contraction will cause which of the following?

Which of the following,according to the Maastricht treaty,was a condition for participating in the common currency area?

Explain why exchange rates are more volatile than is suggested by the relatively simply interest parity condition presented earlier in the course.

After Britain returned to the Gold Standard in the 1920s,the British pound was

For this question,assume that exchange rates flexible and that the exchange rate expected to occur 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?

Euro coins and bank notes were introduced in January

Assume a country is in a fixed exchange rate regime.Explain what factors might cause individuals to expect that a country will devalue its currency.

Assume a country is in a fixed exchange rate regime.Now suppose that individuals expect that policy makers will revalue its currency.Explain the various actions that policy makers can choose in response to this expected revaluation.

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?

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 a reduction in wealth causes households to reduce consumption.This wealth-induced decrease in consumption will cause which of the following to occur?

If the exchange rate between two countries is expected to remain fixed at its current rate,then

What is an "optimal currency area"? Also,discuss the conditions that must be satisfied for an optimal currency area to exist.

Policy makers can select from a number of different exchange rate regimes and exchange rate policies.Which of the following policies would most likely represent a hard peg?

In a fixed exchange rate regime,which of the following policies could be implemented to reduce a trade deficit and leave aggregate demand constant?

When policy makers decide to revalue the currency,such an action generally represents

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 fiscal policy makers increase taxes.This fiscal contraction will cause which of the following?

For this question,assume that interest parity holds,the future expected exchange rate is constant,the current nominal exchange rate is 1.2,the one-year foreign interest rate is 6% and the one-year domestic interest rate is 3%.Given this information,one can conclude that

Suppose a reduction in the domestic one-year interest rate expected to occur in two years .All else fixed,will the reduction in interest rate have which of the following effects in a flexible exchange rate regime?

Assume a country is in a fixed exchange rate regime.Now suppose that individuals expect that policy makers will devalue its currency.Explain the various actions that policy makers can choose in response to this expected devaluation.

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