From 2012 to 2014, political, military, and social unrest in Syria sparked many individuals to flee the Syrian pound (SYP) in favor of other, more stable, currencies and currency systems.
a. In preparation for their flight to other currencies, individuals and families moved funds from time deposits to checking accounts. From there, they intended to purchase other currencies. Explain the effect (if any) the movement of funds from Syrian time deposits to checking deposits had on Syria's monetary base, M2 money multiplier, and real risk-free interest rate.
b. If the Syrian central bank decided to intervene in the foreign exchange market as this capital flight took place, explain the effect (if any) these massive capital outflows should have had on Syria's monetary base, real risk-free interest rate, and reserve assets.
c. If the Syrian central bank decided not to intervene in the foreign exchange market as this capital flight took place, explain the effect (if any) these massive capital outflows should have had on Syria's monetary base, real risk-free interest rate, and reserve assets.
d. Due to the significant social unrest in Syria, suppose the president was reluctant to impose any major restrictions on the importation and exportation of goods and services or to interfere in the movement of financial capital across Syria's borders. At the same time, suppose he expressed a strong preference for maintaining a fixed exchange rate in order to provide, at least, a small oasis of stability in the economy. Fearing that rising unemployment would add to the political turmoil, suppose the president decided to pressure the central bank to increase the nation's monetary base in the hopes that it would stimulate the economy and provide jobs. Explain how likely the chances were for this policy to succeed.