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Chapter 33: Q. 33.4LO (page 732)

Understand how policymakers can go about attempting to fix exchange rates

Short Answer

Expert verified

Constant exchange rate give importers additional security and enable the government start inflationary pressures.

Step by step solution

01

Introduction

This stable currency is really a political or fiat currency arrangement generally fixes a state's main currency value toward the cost of this other money or indeed the spot price. A stable currency system's objective is to keep overall rate of exchange within such a low distance.

02

Given Information

This same intention of a floating exchange rate system scheme will be to retain the amount of money in circulation within one limited field.

03

Explanation

Default rates allow trade in goods more assurance. Bond yields can assist governments obtain stable prices by dropping borrowing rates, therefore strengthens protracted trade relations.

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Most popular questions from this chapter

Why do you suppose that foreign expenditures on U.S. exports declined during 2015?

A sudden increase in economic and political instability throughout Europe and Asia has caused the United States to appear to British residents to be relatively more economically and politically more stable than was previously the case. What will happen to the equilibrium dollar price of the pound, and why? Does the dollar appreciate or depreciate in relation to the pound?

Suppose that during a recent year for the United States, merchandise imports were \(2trillion, unilateral transfers were a net outflow of\)0.2trillion, service exports were trillion, service imports were\(0.1trillion, and merchandise exports were\)1.4trillion.

a. What was the merchandise trade deficit?

b. What was the balance on goods and services?

c. What was the current account balance?

Determine if each of the following items results in a surplus or deficit in the current account of the balance of payments.

a. A Central European corporation offers products to a chain of hobby stores in the United States.

b. Japanese citizens pay a U.S. travel agency to arrange hotel accommodations, ground transportation, and tours of many U.S. cities, including New York, Chicago, and Orlando.

c. A Mexican corporation hires an accounting firm in the United States to audit its financial accounts.

d. Following a severe earthquake in Pakistan, churches and mosques in the United States contribute humanitarian aid to the country.

e. A Canadian corporation supplies raw materials to a US microprocessor maker.

On Wednesday, the exchange rate between the Japanese yen and the U.S. dollar was \(0.010 per yen. On Thursday, it was \)0.009. Did the dollar appreciate or depreciate against the yen? By how much, expressed as a percentage change?
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