Consider a small open economy with a wide array of trading partners all operating in different currencies. The economy’s business cycles are not well synchronized with any of the world’s largest economies and the policymakers in this country have a well-earned reputation for being fiscally prudent and honest. In your view, should this small open economy adopt a fixed exchange-rate regime?
Answer to relevant QuestionsDuring the time of the currency board, Argentinean banks offered accounts in both dollars and pesos, but loans were made largely in pesos. Describe the impact on banks of the collapse of the currency board. Assuming the country is open to international capital flows, which of the following combinations of monetary and exchange-rate policies are viable? Explain your reasoning.(a) A domestic interest rate as a policy instrument ...Explain why giving an independent central bank control over the quantity of money in the economy should reduce the occurrences of periods of extremely high inflation, especially in developing economies. Which of the following factors would increase the transactions demand for money? Explain your choices.(a) Lower nominal interest rates.(b) Rumors that a computer virus had invaded the ATM network.(c) A fall in nominal income.A scatter plot can reveal a relationship between two indicators. Construct a scatter plot of annual data beginning in 1959 for inflation and money growth. Measure these as the percent change from a year ago of consumer ...
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