Briefly discuss a currency board as an approach to maintaining a fixed exchange rate.
What will be an ideal response?
POSSIBLE RESPONSE: A currency board is a monetary authority whose exclusive focus is to establish and maintain a long-lived fixed or pegged exchange rate. Conventional objectives of a central bank are subordinate to managing the exchange-rate target. With a currency board, the country's money supply is automatically linked to any intervention needed to defend the fixed exchange rate. Because the money supply is automatically linked to the defense of the exchange rate, a currency board arrangement increases the credibility of the country's commitment to maintain a fixed exchange rate. Additionally, as a currency board holds only international reserve assets, sterilization is not possible. With a currency board arrangement the government cannot determine interest rates. Interest rates adjust automatically when investors switch in and out of the foreign currency that the domestic currency is pegged against. Also, unlike a conventional central bank, a currency board cannot act as a lender of last resort to ensure liquidity in a banking crisis.
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A movement along the demand curve for a good can be attributed to a change in
a.the substitution effect of consuming a good
b.the demand for a good
c.the opportunity cost of producing a good.
d.the quantity demanded of a good
An increase in the U.S. price level will increase U.S. net exports
a. True b. False Indicate whether the statement is true or false
A decrease in income will shift the demand curve for an inferior good to the right
a. True b. False Indicate whether the statement is true or false
The lemons problem gives the owners of above-average-quality used cars an incentive to:
A. offer a warranty when selling their cars. B. exaggerate the quality of their cars when selling them. C. ask for a sales price that is higher than the blue book value of their car. D. understate the true quality of their cars when selling them.