Assume the central bank engages in aggressive open market purchases in an effort

Question

Assume the central bank engages in aggressive open market purchases in an effort to stimulate the domestic economy. The nation has flexible exchange rates and the central bank does not intervene in the foreign exchange markets.

a) The change in R causes foreign money to flow (into or out of) the nation. This causes the domestic currency to (appreciate or depreciate).

b) The combined effect of changes in R, PI and RGDP causes the domestic currency to (appreciate or depreciate).

c) The depreciation of the domestic currency will tend to (increase or decrease) exports and NE but the changes in PI and RGDP will (increase or decrease) NE. The net result will be an (increase or decrease) in NE.

d) NE will tend to (support or oppose) the goal of stimulating the nation’s economy.

Explanation / Answer

a) The money flow into the nation is not bound by the government. Then it is signal of very good thing ( FREE MARKET). In free market money will just flow in. This is partciualrly true in countires which were previous not open markets.

B) Appretiate, If economy is doing great and country is rising. Then certainly people want to buy local currency to do more business. This will result in appretiation of currency

C) Increase exports. Decrease the NE .. The net result will be an increase in NE

D) NE will tend to oppose the goal of stimulating economy

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.