How might China benefit from adopting a flexible exchange rate policy?
What will be an ideal response?
With a flexible exchange rate, China can stop adding to its reserve of low-yielding U.S. assets. Strengthening of the yuan will reduce inflationary pressures and, perhaps, reduce conflicts over trade policies with other nations. With a flexible exchange rate, China can relax its capital controls while retaining its independent monetary policy.
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Joseph Gallo poured two glasses of wine from the same bottle but put a more expensive price tag on one glass than on the other. He let people test both and asked them which they wanted, and most wanted the more expensive glass, not knowing that both had come from the same bottle. This result indicates that firms should:
A. be careful about lowering the price of their product, because consumers may assume that a lower price means lower quality. B. always raise the price of their product. C. never lower the price of their product. D. be careful about raising the price of their product, because the law of demand is always valid.
When bankers hold excess reserves:
A. The size of the monetary multiplier increases B. The money-creating potential of the banking system increases C. The money-creating potential of the banking system decreases D. There is no change in the money-creating potential of the banking system
With a lump-sum tax, the
a. marginal tax rate is always less than the average tax rate. b. average tax rate is always less than the marginal tax rate. c. marginal tax rate falls as income rises. d. marginal tax rate rises as income rises.
Which of the following is most likely to reduce the rate of economic growth?
A. slow technological progress B. investment in human capital C. a high domestic saving rate D. subsidies for R&D activities