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Author Question: Does it appear that currency boards make fixed exchange rates credible? What will be an ideal ... (Read 91 times)

oliviahorn72

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on: Jun 30, 2018
Does it appear that currency boards make fixed exchange rates credible?
 
  What will be an ideal response?

Question 2

Refer to the figure above, which shows domestic supply and demand. If P1 is equal to P2 (the world price) plus a tariff, then the social loss from the tariff is equal to
 
  A) a + c
  B) b
  C) P1 ( Q3 - Q2 )
  D) P2 (Q2 - Q1 ) + (Q4 - Q3 )
  E) a + b + c


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alexisweber49

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Reply #1 on: Jun 30, 2018
Answer to Question 1

No, because is prohibited by law from acquiring any domestic assets, so all the currency it issues automatically is fully backed by foreign reserves. Also countries that adopt currency board, do it because one of the mayor advantage aside from the constrain it places on fiscal policy, central bank can never run out of foreign exchange reserves in the face of a speculative attack on the exchange rate. So the currency board cannot fix exchange rates.

Answer to Question 2

A


oliviahorn72

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Reply #2 on: Jun 30, 2018
Correct answers!


alexisweber49

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Reply #3 on: Jun 30, 2018
Great! Please up vote :D


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