This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market ... (Read 126 times)

lindiwe

  • Hero Member
  • *****
  • Posts: 577
on: Jun 30, 2018
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
Reply #1 on: Jun 30, 2018
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.


lindiwe

  • Hero Member
  • *****
  • Posts: 577
Reply #2 on: Jun 30, 2018
Correct answers!


lkoler

  • Sr. Member
  • ****
  • Posts: 358
Reply #3 on: Jun 30, 2018
Great! Please up vote :D


« previous next »
 

Did you know?

When taking monoamine oxidase inhibitors, people should avoid a variety of foods, which include alcoholic beverages, bean curd, broad (fava) bean pods, cheese, fish, ginseng, protein extracts, meat, sauerkraut, shrimp paste, soups, and yeast.

Did you know?

The average person is easily confused by the terms pharmaceutics and pharmacology, thinking they are one and the same. Whereas pharmaceutics is the science of preparing and dispensing drugs (otherwise known as the science of pharmacy), pharmacology is the study of medications.

Did you know?

Famous people who died from poisoning or drug overdose include, Adolf Hitler, Socrates, Juan Ponce de Leon, Marilyn Monroe, Judy Garland, and John Belushi.

Did you know?

Vital signs (blood pressure, temperature, pulse rate, respiration rate) should be taken before any drug administration. Patients should be informed not to use tobacco or caffeine at least 30 minutes before their appointment.

Did you know?

Between 1999 and 2012, American adults with high total cholesterol decreased from 18.3% to 12.9%

Main Hall, Trajan's Market Main Hall, Trajan's Market
Social scientists have not done well at devising theories to explain lovely romantic moments Social scientists have not done well at devising theories to explain lovely romantic moments
Juan's Software Service Company is in a perfectly competitive market. Juan has total fixed ... Juan's Software Service Company is in a perfectly competitive market. Juan has total fixed ...
Time value money Time value money
A debt payment of $7500 is due in 24 months. If money is worth 7.2% p.a. compounded quarterly, ... A debt payment of $7500 is due in 24 months. If money is worth 7.2% p.a. compounded quarterly, ...
Learn Canadian money grade 1 Learn Canadian money grade 1
Video: Blood Test Basics

For a complete list of videos, visit our video library