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

Author Question: Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market ... (Read 102 times)

lindiwe

  • Hero Member
  • *****
  • Posts: 577
Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.
 
  What will be an ideal response?

Question 2

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at least some monetary independence.
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

lkoler

  • Sr. Member
  • ****
  • Posts: 358
Answer to Question 1

Because Norway's interest rate must equal the euro interest rate, any pure shifts in the AA curve (see chapter 19 ) will result in immediate reserve inflows or outflows that leave Norway's interest rate unchanged.

Answer to Question 2

Any independent money supply change in Norway would put pressure on krone interest rates and thus on the krone/euro exchange rate. So by pegging the krone even to a single foreign currency, Norway completely surrenders its domestic monetary control.




lkoler

  • Sr. Member
  • ****
  • Posts: 358

 

Did you know?

Illness; diuretics; laxative abuse; hot weather; exercise; sweating; caffeine; alcoholic beverages; starvation diets; inadequate carbohydrate consumption; and diets high in protein, salt, or fiber can cause people to become dehydrated.

Did you know?

Approximately 70% of expectant mothers report experiencing some symptoms of morning sickness during the first trimester of pregnancy.

Did you know?

About 600,000 particles of skin are shed every hour by each human. If you live to age 70 years, you have shed 105 pounds of dead skin.

Did you know?

During pregnancy, a woman is more likely to experience bleeding gums and nosebleeds caused by hormonal changes that increase blood flow to the mouth and nose.

Did you know?

All patients with hyperparathyroidism will develop osteoporosis. The parathyroid glands maintain blood calcium within the normal range. All patients with this disease will continue to lose calcium from their bones every day, and there is no way to prevent the development of osteoporosis as a result.

For a complete list of videos, visit our video library