Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain
What will be an ideal response?
The signalling effect refutes the claim. Even with the assumption of perfect asset substitutability, if the market is unsure of the future direction of policy, then sterilized intervention can fix a market's expectations about the exchange rate in the future. From post discussion, a change in the expected exchange rate will lead to a change in the exchange rate today.
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A main argument for investing in US securities is the:
A. high rate of interest. B. low rate of interest C. low risk of owning them. D. varied time frame of payment for different types of securities.
Mutually beneficial trade between two countries is possible only as long as
a. unit costs of production are the same no matter how many units are being produced b. marginal costs rise as production increases c. marginal costs are equal to average total costs d. one country has an absolute advantage in the production of one good, while the other country enjoys a similar advantage in making another good e. one country has a comparative advantage in the production of one good, while the other country enjoys a comparative advantage in making another good
When adjusting nominal GDP for price changes, it is preferable to use the GDP deflator rather than the consumer price index because
a. the GDP deflator is calculated for a narrow market basket of goods, approximating those items included in our measure of consumption expenditures. b. the GDP deflator calculates changes in the prices of items that more closely approximate those included in GDP. c. the GDP deflator is always less than the consumer price index, and therefore, it is a more stable index. d. the GDP deflator is the sum of the consumer price index and the wholesale price index.
Suppose a country has a larger increase in debt in 2014 than it had in 2013 . Then other things the same,
a. the supply of loanable funds shifts rightward and the interest rate falls. b. the supply of loanable funds shifts leftward and the interest rate rises. c. the demand for loanable funds shifts leftward and the interest rate falls. d. the demand for loanable funds shifts rightward and the interest rate rises.