Compare and contrast the effects of an expansionary monetary policy and a contractionary monetary policy in the open economy.
What will be an ideal response?
If Country A pursues an expansionary policy, the money supply will increase and interest rates will fall. As a result, many domestic and foreign investors will switch to investing in assets produced by other nations that have higher interest rates. The demand for Country A’s currency will depreciate, making their products less expensive. Because of this, foreign buyers will purchase more exports from Country A. However, Country A’s buyers will import less because foreign products will be more expensive comparatively. In contrast, if Country A follows a contractionary policy, the money supply will decrease and interest rates will rise. As a result, many domestic and foreign investors will switch to investing in assets produced by Country A because of its high interest rates. In turn, the value of Country A’s currency will appreciate, making their products more expensive than many foreign products. Therefore, Country A’s exports will decrease and its imports will increase.
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In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ________ the ________ of reserves which causes the federal funds rate to fall, everything else held constant
A) increases; supply B) increases; demand C) decreases; supply D) decreases; demand
For most residential telephone service, people pay a monthly fee to have a hookup to the telephone company's line plus a fee for each call actually made. Under this pricing scheme, the telephone company is using
A) limit pricing. B) a two-part tariff. C) second-degree price discrimination. D) two stage price discrimination.
Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics?
A. That the recognition heuristic will overcome any negative emotional associations. B. That the recognition heuristic will prevent people from incorporating negative information into their decision-making process. C. That framing effects will diminish the negative emotions associated with most bad publicity. D. That self-serving biases will make people "look the other way" and ignore bad publicity.
Which of the following is a FALSE statement about the International Monetary Fund (IMF)?
A) The IMF was created after the Bretton Woods Conference to help to maintain the international fixed exchange rate system that was introduced. B) The IMF lends to national governments, initially to maintain the fixed exchange rate system, and today to deal with debt or currency crises. C) Multinational corporations can get IMF loans if they agree to invest in economies that are internationally perceived as risky and otherwise unlikely to receive direct foreign investment. D) One of the criticisms of the IMF and other international governmental organizations that deal with the global economy is that their decision making may be biased toward policies that favor industrialized nations.