Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 15CQ
To determine
Purchase of Country U’s treasury bills by Countries C and J and its effect over Country U’s economy.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
If a small country, such as Argentina, attempts to fix its currency exchange rate with the United States,
its inflation rate must be higher than the U.S. inflation rate.
its interest rates will move together with the U.S. interest rates.
its currency value relative to the U.S. dollar will fluctuate over time.
its central bank will have full flexibility in monetary policy actions.
it must restrict the flow of funds with the United States.
In Belarus, the government doesn’t allow trading of its ruble outside a narrow price range, which greatly overvalues the ruble – there is a price floor on the ruble compared to euros or dollars. Because of the floor, currency trading has dried up – who would want to sell foreign currencies for grossly overpriced Belarusian rubles? A friend of one of my students has a web site designed to overcome rigidities in this market, a sort of Craigslist for currency. People specify amounts they are willing to buy or sell, agree to trade at some price and arrange a meeting place. When they meet, the trade nominally occurs at the official price floor, making the transaction nominally legal; but the person selling rubles makes extra payments to the buyer to lower the price sufficiently so that the trade actually takes place at the equilibrium price. This is one more way in which technology helps markets circumvent imperfections and rigidities.
Q: If the Belarusian government increases…
The 1997 Asian crisis began when speculators attacked baht, the Thai currency. Thailand, like many Asian economies, had a fixed exchange rate system whereby the baht was fixed relative to the US dollar. The country was running substantial balance of payments deficits and was losing reserves as it was defending the exchange rate against the dollar. As markets realized that the government could not sustain the exchange rate any longer, investors shifted to other hard currencies. The Thai stock market index plunged by 50 percent within a year and banks were in danger of collapse as they had loaned funds using inflated assets as collateral. The domino effect also hit the other Asian economies as they were experiencing similar problems. Investors fled from the Philippines, Malaysia, and Indonesia, as expectations of a fall in their exchange rates grew stronger. The authorities in these countries were forced to abandon the exchange rate peg and, at the same time, Taiwan and Singapore also…
Chapter 19 Solutions
Economics: Private and Public Choice (MindTap Course List)
Knowledge Booster
Similar questions
- The popularity of the leader of a nation can affect the value of their currency. If the President of the United States has a good popularity rating with the citizens of the United States, does that make the US dollar stronger or weaker? Why or why not?arrow_forwardWhich of the following would result from a weakening of the U.S. dollar relative to the Japanese yen? Lesser popularity for U.S. exports in Japan. Greater popularity for U.S. exports in Japan Happy U.S. tourists who are visiting Japan. Higher real interest rates in the United Statesarrow_forwardThis summer has been very hot. In fact, many crops that need water to thrive have been suffering from dry conditions. Does poor weather, which reduces crop production, make the US dollar weaker or stronger?arrow_forward
- The U.S. dollar is still considered the most traded and the most stable currency in the world. It is easily converted over to other currencies when trading and is also the official currency of several U.S. territories. However, a strong U.S. dollar has both advantages and disadvantages. One of the advantages that was already mentioned is that the conversion of the U.S. dollar over to other countries is fairly easy and grants it a greater degree of buying power for foreign products. This also makes foreign imports cheaper not to mention investors benefit when engaging in FDI. The disadvantages of a strong U.S. dollar is that it makes it more expensive for foreign countries to import products from the U.S., which negatively affects industries and business owners within that country as a result. It can even negatively affect the U.S. because those that conduct business internationally will technically earn less from foreign sales if their currency is not fully convertible. Overall, even…arrow_forwardThe U.S. dollar is still considered the most traded and the most stable currency in the world. It is easily converted over to other currencies when trading and is also the official currency of several U.S. territories. However, a strong U.S. dollar has both advantages and disadvantages. One of the advantages that was already mentioned is that the conversion of the U.S. dollar over to other countries is fairly easy and grants it a greater degree of buying power for foreign products. This also makes foreign imports cheaper not to mention investors benefit when engaging in FDI. The disadvantages of a strong U.S. dollar is that it makes it more expensive for foreign countries to import products from the U.S., which negatively affects industries and business owners within that country as a result. It can even negatively affect the U.S. because those that conduct business internationally will technically earn less from foreign sales if their currency is not fully convertible. Overall, even…arrow_forwardWhich of the following is likely to occur for the United States, if the US dollar loses strength relative to the Japanese yen, ceteris paribus? A- Aggregate demand will decrease (shift left) B- Aggregate demand will increase (shift right) C- Aggregate supply will increase (shift right) D- Aggregate supply will decrease (shift left)arrow_forward
- Right now (Fall 2022), the US dollar is significantly stronger that it has been during the last few years — it appreciated against most currencies by about 15-20 percent over the period of two years. Looking at two groups of economic agents — US consumers and US producers — how does stronger currency affect any of these two groups? (other things being equal)arrow_forwardwhy, according to some economists, should canada adopt the U.S dollar as its currency?arrow_forwardTo prevent an appreciation of the British pound, the U.S. Federal Reserve has to: Sell U.S. currency Buy British currency Sell British currency Devalue the U.S. dollararrow_forward
- Suppose that, initially, the foreign exchange market between the United Kingdom and Canada is in equilibrium. However, over time, the supply of the Canadian euro shifts to the left, causing the pound to (depreciate/appreciate) against the Canadian euro. Which of the following is a disadvantage of this change in the supply of foreign currency for the United Kingdom? a)UK exporting firms find it easier to sell goods on Canadian markets. b)UK consumers face lower prices on Canadian goods. c)UK exporting firms find it more difficult to compete in the Canadian market. d)UK consumers face higher prices on Canadian goods.arrow_forwardWhich of the following surprises would most likely decrease the valuation of a currency? Surprise increase in PPI Surprise increase in central bank rates Surprise decrease in CPIarrow_forwardThe South African Reserve Bank (SARB) seeks to maintain liquidity in the money market using a variety of monetary instruments. The exchange rate is crucial for the Reserve Bank to achieve its dual mandate of price stability. Write a brief essay discussing the importance of the exchange rate in maintaining price stability.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning