(a) Differentiate between monetary policy, fiscal policy and supply side policy, andusing relevant examples, explain how such policies can influence the operation offirms.(b) "Many countries today want to stabilise their foreign exchange rates. They equallygo for a number of protectionist measures in order to ensure the development ofthe domestic industry.Using relevant examples, explain how fluctuations in the exchange rate andprotectionist measures can affect the operation of businesses in an economy.

Approach to Solving the Question:Part (a):Define each policy: monetary, fiscal, and supply…

Answered: (a) Differentiate between monetary…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

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Similar questions

If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
How did large trade deficits hurt the East Asian countries in the mid 1980s? (Recall that trade deficits are equivalent to inflows of financial capital from abroad.)
Many developing countries, like Mexico, have moderate to high rates of inflation. At the same time, international trade plays an Important role In their economies. What type of exchange rate regime would be best for such a countrys currency vis Ă´ vis the U.S. dollar?
Many think that the size of a trade deficit is due to a lack of competitiveness of domestic sectors, such as autos. Explain why this is not true.
Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
State whether each of the following events Involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy: Mexico Imports sen4ces from Japan Mexico exports goods to Canada U.S. investors receive a return from past financial investments in Mexico
Why does the trade balance and the current account balance track so closely together over time?
I need help on this ASAP: The following questions are related to foreign exchange markets.(1) Explain the theory of Purchasing Power Parity (PPP) and give a real-world example(2) An investor in the UK purchased a 60-day T-bill for $875.65. At that time, theexchange rate was $1.5 per pound. At maturity, the exchange rate was $1.83 perpound . What was the investor's holding period return in pounds?
Initially, the exchange rate between Lebanon and Mexico is in equilibrium. Now, assume that there is a decrease in demand for Mexican pesos. As a result of this change, what will happen to Mexican pesos? an appreciation a depreciation no change Furthermore, a decrease in demand for Mexican pesos also results in winners and losers for various groups that are affected by the foreign exchange market. For the group in each example, indicate whether it is a winner or a loser in this change. ____ a tourist from Lebanon going on vacation to Mexico. ____ a mutual fund in Lebanon that purchases bonds in Mexico. ____ a family from Mexico visiting relatives in Lebanon. ____ a small firm in Mexico that sells DoDads in Lebanon. ____ a large firm in Lebanon selling chemicals in Mexico. ____ a multinational based in Mexico purchasing land in Lebanon. Answer Bank: winner, loser
The demand for Australian dollars in the foreign exchange market equals 14000 – 3000e and thesupply of Australian dollars in the foreign exchange market equals 2000 + 2000e, where e is thenominal exchange rate expressed in euros per Australian dollar. If the Australian dollar is fixed at 2euros per Australian dollar, then to maintain this fixed rate, what is the required change in theReserve Bank of Australia’s holdings of euros? 1increase by 4000 euros 2decrease by 2000 euros 3decrease by 4000 euros 4increase by 2000 euros
What happens if there is a shortage or a surplus of Canadian dollars in the foreign exchange market? *** If a shortage of Canadian dollars occurs in the foreign exchange market, the and the exchange rate A O A. quantity of Canadian dollars demanded increases and the quantity of Canadian dollars supplied decreases; falls OB. demand for Canadian dollars increases and the supply of Canadian dollars decreases; rises OC. quantity of Canadian dollars demanded decreases and the quantity of Canadian dollars supplied increases; COLL 120- 110 100+ 90- 80- 70- Exchange rate (U.S. cents per Canadian dollar) S 60+ D
Suppose the United States decides to subsidize theexport of U.S. agricultural products, but it does notincrease taxes or decrease any other governmentspending to offset this expenditure. Using a threepanel diagram, show what happens to nationalsaving, domestic investment, net capital outflow, theinterest rate, the exchange rate, and the trade balance.Also explain in words how this U.S. policy affects theamount of imports, exports, and net exports.

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