This topic contains a solution. Click here to go to the answer

Author Question: Why might a country raise interest rates in the face of an exchange rate crisis? What will be an ... (Read 101 times)

yoroshambo

  • Hero Member
  • *****
  • Posts: 566
Why might a country raise interest rates in the face of an exchange rate crisis?
 
  What will be an ideal response?

Question 2

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.
 
  Indicate whether the statement is true or false



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

duke02

  • Sr. Member
  • ****
  • Posts: 312
Answer to Question 1

If the value of a country's currency is depreciating rapidly, the country's government can purchase the country's currency in foreign exchange markets in an attempt to boost the value of the currency. However, continuing to purchase currency requires reserves of other currencies (like the dollar), and those reserves are not inexhaustible. The result is that a country has to rely on other sources of increase in value for the currency. By raising interest rates, the country makes investment more attractive to foreigners, increasing the demand for currency, and increasing the equilibrium exchange rate.

Answer to Question 2

FALSE





 

Did you know?

Less than one of every three adults with high LDL cholesterol has the condition under control. Only 48.1% with the condition are being treated for it.

Did you know?

Multiple sclerosis is a condition wherein the body's nervous system is weakened by an autoimmune reaction that attacks the myelin sheaths of neurons.

Did you know?

More than 4.4billion prescriptions were dispensed within the United States in 2016.

Did you know?

Though “Krazy Glue” or “Super Glue” has the ability to seal small wounds, it is not recommended for this purpose since it contains many substances that should not enter the body through the skin, and may be harmful.

Did you know?

Many of the drugs used by neuroscientists are derived from toxic plants and venomous animals (such as snakes, spiders, snails, and puffer fish).

For a complete list of videos, visit our video library