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Flashcards in Lesson 11 Deck (7)
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1
Q

In the first half of the 1980s the U.S. dollar appreciated in response to a combination

A

tight U.S. monetary policy and loose U.S. fiscal policy

2
Q

Consider a economy which operates under a system of fixed exchange rates and which is faced with an increase in the foreign rate of interest (R*). We can predict that the result will be_________ pressure of the exchange rate (E) which will require the domestic central bank to _______ foreign-currency-assets for domestic currency thus _____ the domestic money supply until the domestic interest rate has risen to equal the new higher foreign rate.

A

upward; sell; decreasing

3
Q

In 2001-02 Argentina suffered a currency crisis brought on by

A

a fixed nominal exchange rate combined with high domestic inflation, which led to a fall in the real exchange rate (a real appreciation) and current account deficits

4
Q

Under floating exchange rates one economy can choose to have a lower long-run rate of inflation than the rest of the world if it accepts continuous appreciation of its currency.

A

True

5
Q

Under floating exchange rates it is easier to maintain

A

External Balance (not to big or small of a CA)

6
Q

Under a system of floating,or flexible, exchange rates a sudden and temporary fall in foreign demand for domestic exports will result in a _________ decrease in domestic output than under fixed exchange rates because the shift of the _______ to the left automatically causes a(n) _________

A

smaller; DD curve; depreciation which partially offsets the initial fall in CA

7
Q

Which of the following is considered to be one of the factors which contributed to the world financial crisis of 2007-09?

A

a large increase in world savings which led to a drop in global real interest rates