Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 30, Problem 30.1.5PA
To determine
Difficulty in pursuing the expansionary monetary policy during recessions under the gold standard system.
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“A well-functioning international monetary system is a public good that is essential for economic and financial stability. The IMS has helped support unprecedented economic growth and trade expansion over the past few decades.” (Furusawa, 2019).
In 250 - 300 words, evaluate the role of the international monetary system in promoting international trade and investments.
Visit one of the many websites that lists all of the current exchange rates between different currencies around the world. Try a financial newspaper’s site such as ft.com (follow the links to “Market Data,” and then “Currencies”), or try websites devoted to foreign exchange market data such as oanda.com or xe.com (dig down; don’t just look at the major currency tables). According to these lists, how many distinct currencies exist around the world today? Are some currencies used in more than one country?
Suppose country A’s goods become more popular with foreign consumers, and country B’s less so. How would this affect each country, assuming that they (a) have their own independent currency and (b) share a common currency? Use the aggregate demand (AD) and aggregate supply (AS) framework to explain your answer, and comment briefly on the desirability of currency union. If you can give an example with countries that would be great.
Chapter 30 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 30.A - Prob. 1RQCh. 30.A - Prob. 2RQCh. 30.A - Prob. 3RQCh. 30.A - Prob. 4RQCh. 30.A - Prob. 5RQCh. 30.A - Prob. 6RQCh. 30.A - Prob. 7PACh. 30.A - Prob. 8PACh. 30.A - Prob. 9PACh. 30.A - Prob. 10PA
Ch. 30.A - Prob. 11PACh. 30.A - Prob. 12PACh. 30.A - Prob. 13PACh. 30.A - Prob. 14PACh. 30.A - Prob. 15PACh. 30.A - Prob. 1RDECh. 30 - Prob. 30.1.1RQCh. 30 - Prob. 30.1.2RQCh. 30 - Prob. 30.1.3PACh. 30 - Prob. 30.1.4PACh. 30 - Prob. 30.1.5PACh. 30 - Prob. 30.1.6PACh. 30 - Prob. 30.2.1RQCh. 30 - Prob. 30.2.2RQCh. 30 - Prob. 30.2.3RQCh. 30 - Prob. 30.2.4RQCh. 30 - Prob. 30.2.5PACh. 30 - Prob. 30.2.6PACh. 30 - Prob. 30.2.7PACh. 30 - Prob. 30.2.8PACh. 30 - Prob. 30.2.9PACh. 30 - Prob. 30.2.10PACh. 30 - Prob. 30.2.11PACh. 30 - Prob. 30.2.12PACh. 30 - Prob. 30.2.13PACh. 30 - Prob. 30.2.14PACh. 30 - Prob. 30.2.15PACh. 30 - Prob. 30.2.16PACh. 30 - Prob. 30.2.17PACh. 30 - Prob. 30.2.18PACh. 30 - Prob. 30.2.19PACh. 30 - Prob. 30.2.20PACh. 30 - Prob. 30.3.1RQCh. 30 - Prob. 30.3.2RQCh. 30 - Prob. 30.3.3PACh. 30 - Prob. 30.3.4PACh. 30 - Prob. 30.3.5PACh. 30 - Prob. 30.2RDE
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- Suppose country A’s goods become more popular with foreign consumers, and country B’s less so. How would this affect each country, assuming that they (a) have their own independent currency and (b) share a common currency? Use the aggregate demand (AD) and aggregate supply (AS) framework to explain your answer, and comment briefly on the desirability of currency union.arrow_forwardHow is it necessary for a nation with a fixed exchange rate and open financial markets to renounce its independence in terms of monetary policy?arrow_forwardUsing the foreign exchange market (CAD/EURO), suppose price level in Canada is higher compared to the rest of the world and, at the same time, Canada becomes a more attractive tourist destination for Europeans, show and explain how the foreign exchange rate and the quantity of foreign currency will change.arrow_forward
- In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…arrow_forwardThe incompatible trinity, also known as the trilemma, states that it is impossible to have all three of the following at the same time: a fixed foreign exchange rate, free capital movement (absence of capital controls), and an independent monetary policy. In this case, Brazil is sacrificing an independent monetary policy. This is because it is keeping its exchange rate fixed and allowing free capital movement, but it is not able to independently set its interest rate. arrow_forward Step 2 The real exchange rate is the purchasing power of a currency relative to another at current exchange rates and prices. It is the ratio of the price of a specific good in one country to the price of the same good in another country, expressed in the same currency. In this case, we are using the price of a Big Mac in China and the US to calculate the real exchange rate. arrow_forward Step 3 First, we need to convert the price of a Big Mac in China to US dollars using the nominal exchange rate.…arrow_forwardWhat are two ways in which monetary policies and tight budgets allow a fixed exchange rate system to be successful?arrow_forward
- What happens to the exchange rate of a country’s currency when that country experiences high levels of inflation for an extended period of time? How will it affect the flow of that country’s currency in and out of the country? Explain your answers.arrow_forwardCan you think of a way that Chinese monetary policy might impact some other part of the world economy?arrow_forwardExplain why a country with fixed exchange rate and open financial markets has to give up its monetary policy independence?arrow_forward
- Derive the purchasing power parity using quantity theory of money. Explain and graphically show what determines the supply and demand of a currency.(Note: Give only necessary details. Background info. isn't required. Please try to meet the deadline. Thanks!)arrow_forwardYears ago when banks generated bank notes on their deposits that citizens used as currency, they were often backed by hard assets, including gold that depositors placed with the bank. How is that any different from when the US was on the "gold standard?"arrow_forwardThe autonomous region of Catalonia has recently declared independence from Spain, and is looking for an exchange rate policy that would best fit their needs. The Catalans’ main goal is to stabilise the price level in the long-run, but constantly experience fluctuations in the price of foreign goods imported from Spain and other European countries. Would it be better for the Catalans to fix the exchange rate against the Euro, or to adopt a floating exchange rate? Justify your answer briefly.arrow_forward
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