Author Question: Use a figure to show the effect of a sterilized central bank purchase of foreign assets under the ... (Read 117 times)

KWilfred · **on:** Jun 30, 2018

Use a figure to show the effect of a sterilized central bank purchase of foreign assets under the imperfect asset substitutability assumption.

What will be an ideal response?

Question 2

If a small country imposes a tariff, then

A) the producers must suffer a loss.
B) the consumers must suffer a loss.
C) the government revenue must suffer a loss.
D) the demand curve must shift to the left.
E) the world price on that item will shift.

Kjones0604 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The interest parity condition is given by
R = R + ( - E)/E +
Suppose that the domestic assets of the central bank fall from to through a sterilized purchase of foreign assets. Then the risk-adjusted return increases and the exchange rate increases.

Answer to Question 2

B