Author Question: Explain how a country whose currency is the reserve currency can use monetary policy for ... (Read 94 times)

bucstennis@aim.com

  • Hero Member
  • *****
  • Posts: 532
Explain how a country whose currency is the reserve currency can use monetary policy for macroeconomic stabilization. In particular, explain the result if that country doubled its domestic money supply.
 
  What will be an ideal response?

Question 2

If a tariff on bikes causes domestic bike prices to rise by 20 and domestic value added in the domestic bike industry to rise by 30, then
 
  A) the nominal rate of protection of bikes is 20.
  B) the effective rate of protection of bikes is 30.
  C) the effective rate of protection is higher than the nominal rate.
  D) All of the above.



nguyenhoanhat

  • Sr. Member
  • ****
  • Posts: 332
Answer to Question 1

The immediate result of the doubling of the money supply in the reserve currency's country will be able to increase the exchange rate between the reserve currency and all other currencies. However, all other countries must fix their exchange rate to the reserve currency, so they will purchase the reserve currency and hold it as official international reserves (thus increase their own money supply) until the exchange rate has returned to normal. Thus, the reserve country has the power to affect its own economy and all other countries must adjust in response.

Answer to Question 2

D



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

In 1886, William Bates reported on the discovery of a substance produced by the adrenal gland that turned out to be epinephrine (adrenaline). In 1904, this drug was first artificially synthesized by Friedrich Stolz.

Did you know?

Vaccines prevent between 2.5 and 4 million deaths every year.

Did you know?

Vaccines cause herd immunity. If the majority of people in a community have been vaccinated against a disease, an unvaccinated person is less likely to get the disease since others are less likely to become sick from it and spread the disease.

Did you know?

Since 1988, the CDC has reported a 99% reduction in bacterial meningitis caused by Haemophilus influenzae, due to the introduction of the vaccine against it.

Did you know?

Although the Roman numeral for the number 4 has always been taught to have been "IV," according to historians, the ancient Romans probably used "IIII" most of the time. This is partially backed up by the fact that early grandfather clocks displayed IIII for the number 4 instead of IV. Early clockmakers apparently thought that the IIII balanced out the VIII (used for the number 8) on the clock face and that it just looked better.

For a complete list of videos, visit our video library