Q2. Use a figure as discussed in class to illustrate why the U.S. is exporting inflation to China that exports real goods to the U.S. The U.S. Fed has printed huge amounts of the dollar (in the name of QE policies) but did not cause much inflation in the U.S., and price inflation/housing bubble did take off in China, showing a sign that the RMB is becoming an auxiliary currency of the U.S. dollar. It seems that China has lost in part its monetary autonomy under leaky capital controls if it wants to prevent its exchange rate from high instability that hurts trade and growth. In the figure, China’s central bank is on the demand side of the forex market while foreign currency speculators are on the supply side..

Q2. Use a figure as discussed in class to illustrate why the U.S. is exporting inflation to China that exports real goods to the U.S. The U.S. Fed has printed huge amounts of the dollar (in the name of QE policies) but did not cause much inflation in the U.S., and price inflation/housing bubble did take off in China, showing a sign that the RMB is becoming an auxiliary currency of the U.S. dollar. It seems that China has lost in part its monetary autonomy under leaky capital controls if it wants to prevent its exchange rate from high instability that hurts trade and growth. In the figure, China’s central bank is on the demand side of the forex market while foreign currency speculators are on the supply side..

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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