Why might a government intervene in the foreign exchange markets to try to increase or decrease the value of its currency?
What will be an ideal response?
The U.S. economy can potentially benefit from a currency depreciation. It can stimulate the U.S. economy because of an increase in the foreign purchases of U.S. goods and services as the value of foreign currency has risen relative to the U.S. dollar. This is true unless the economy is already at full employment and more foreign demand causes inflation. If the government wanted to stimulate the economy, it would want to intervene in foreign exchange markets to prevent a rise in the international value of the dollar. It could do this by selling dollars for another foreign currency such as the Japanese yen. The Japanese government may do just the opposite if it wanted to increase its exports. However, if its economy was already at full employment, it may be willing to allow depreciation of the U.S. dollar and may even assist the U.S. government by buying dollars with yen.
You might also like to view...
In recent years, the price of smartphones has fallen, while the quantity exchanged of smartphones has risen. We can conclude that this is most likely a result of
A) a decrease in supply while demand remained constant. B) an increase in demand while supply remained constant. C) an increase in demand that exceeded an increase in supply. D) an increase in supply that exceeded an increase in demand.
Viewed through the aggregate expenditures model, the U.S. recession of 2007-2009 resulted mainly from:
A. a fall in the average propensity to save. B. insufficient aggregate expenditures. C. reduced government spending. D. increased taxes.
After World War II, cigarettes were used as money in Germany. This is an example of
A. legal money. B. token money. C. commodity money. D. fiat money.
Globally, from 1996-2013 the highest average growth rate per year occurred on the continent of Africa.
Answer the following statement true (T) or false (F)