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

The European Monetary System represented a

As the economy moves up and to the left along the IS curve,which of the following will occur when exchange rates are flexible?

An increase in the real exchange rate will cause

Assume policy makers in a fixed exchange rate regime decide to peg the exchange rate at a lower level.This is called

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

A reduction in the real exchange rate will cause

For this question,assume that policy makers are pursuing a fixed exchange rate regime.Now suppose a budget is passed that calls for a reduction in government spending.This reduction in government spending will cause which of the following to occur?

For this question,assume that policy makers are pursuing a fixed exchange rate regime.Now suppose that households decide to increase consumption because of,for example,an increase in consumer confidence.Given this information,we would expect which of the following to occur?

Assume that the interest parity condition holds.Also assume that the U.S.interest rate is 8% while the U.K.interest rate is 6%.Given this information,financial markets expect the pound to

Suppose the domestic and foreign interest rates are both initially equal to 4%.Now suppose the foreign 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,a reduction in the expected future exchange rate will cause

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

Assume the interest parity condition holds and that initially i = i*.A reduction in the foreign interest rate (i*)will cause

Assume the exchange rate is fixed.Using the IS-LM model,graphically illustrate and explain what effect a reduction in consumer confidence will have on the domestic economy.In your graphs,clearly label all curves and equilibria.