State the advantages and disadvantages of a foreign country adopting the U.S. dollar as its own currency.
What will be an ideal response?
POSSIBLE RESPONSE: The major advantage for a country dollarizing is the reduction or elimination of exchange-rate risk. Thus, it removes the uncertainty that the government could devalue or depreciate local currency in the future. It also eliminates the risk of a speculative attack on the currency. Further, it eliminates the risk premium that is built into local-currency interest rates. Yet another advantage is the elimination of transaction costs of currency exchange. A major disadvantage is the loss of interest income on the country's holdings of international reserve assets. When a country adopts dollarization, the "seigniorage profit" from issuing currency in the country goes to the U.S. government. Loss of monetary autonomy is another important disadvantage. The monetary policy decisions made by the Fed will serve to better the economic conditions of the U.S. economy and may not be well-suited for the dollarized country's economy. Additionally, the country loses the ability to actively use exchange rate changes to address its economic imbalances.
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Stabilization policy has helped ameliorate the impact of recessions since the 1950s.
Answer the following statement true (T) or false (F)
Based on our understanding of the determinants of the interest rate and bond prices, we know that a reduction in income will cause
A) an increase in bond prices and an increase in the interest rate (i). B) a reduction in bond prices and an increase in i. C) an increase in bond prices and a reduction in i. D) a reduction in bond prices and a reduction in i. E) none of the above
Stricter laws and regulations to protect intellectual property rights
A) will help to create a more successful market system. B) will only benefit those companies whose intellectual property rights have in the past been ignored. C) will tend to have little impact on an economy since intellectual property is not tangible. D) will create a stronger and more successful black market for intellectual property.
Other things equal, an increase in the Z factors will ________ the equilibrium price level and ________ equilibrium output.
A. increase; decrease B. decrease; increase C. increase; increase D. decrease; decrease