Use a figure to explain how a balance of payments crisis and its ...

[TFauchery]

Use a figure to explain how a balance of payments crisis and its hand in capital flight.
 
  What will be an ideal response?

Question 2

Which of the following is FALSE about private savings and government savings?
 
  A) SP = Y - T - C
  B) Unlike private saving decisions, government saving decisions are often made with an eye toward their effect on output and employment.
  C) Total savings (S) = SP + .
  D) The national income identity can help us to analyze the channels through which government saving decisions influence macroeconomic conditions.
  E) None of the above; all statements are true.

[Qarqy]

Answer to Question 1

Suppose the foreign exchange market expects the government to devalue the currency in the future and adopt a new fixed exchange rate > . This leads to a rightward shift in the curve that measures the expected domestic currency return on foreign currency deposits. Since the exchange rate remains fixed at , the domestic interest rate must rise to R + ( - )/ . The central bank must sell foreign reserves and shrink the money supply in response. This reserve loss accompanying a devaluation scare is labeled capital flight.

Answer to Question 2

E

[TFauchery]

Thanks for the timely response, appreciate it

[Alyson.hiatt@yahoo.com]

TYSM