Explain why many industrialized countries do not often intervene in the foreign exchange market.
What will be an ideal response?
As Chapter 10 pointed out with the lesson of Japan in the spring of 2002, an intervention into the foreign exchange market by a government to appreciate/depreciate its currency can be reversed by monetary authorities who are pursuing their own interests. Because the targeting of an exchange rate can make monetary policy difficult to impossible to carry out, many industrialized countries do not intervene in the foreign exchange markets that often. Unless the central bank adjusts monetary policy (by raising or lowering its policy rate) accordingly, foreign exchange intervention alone is likely to fail.
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If a country wants to keep the value of its currency fixed, then its central bank should
A) sell domestic goods when there is an increase in the supply of its domestic currency. B) buy domestic goods when there is an increase in the supply of its domestic currency. C) sell its domestic currency when there is an increase in the supply of that currency. D) buy its domestic currency when there is an increase in the supply of that currency.
Why might a business owner keep their business open but let it deteriorate, rather than shut it down? Will this profitability last?
What will be an ideal response?
In international trade the term "dumping" means
A) price discrimination by domestic producers. B) selling goods in a foreign market for a price less than on the home market. C) selling goods in a home market for a price less than on the foreign market. D) selling goods on the black market to avoid paying taxes.
Because monetarists believe that output is sensitive to changes in the money supply, they recommend that the money supply be allowed to grow at a steady and predictable rate.
Answer the following statement true (T) or false (F)