Question: 1.Unlike countries with currency problems, China has used a fixed exchange rate to keep the value of its currency below its market level. What is likely to happen to China's imports, exports, and purchases of U.S. securities if the exchange rate is allowed to float? Explain your answer. 2.If I were to trade $1 as a base currency and the yen starts devaluating due to inflation, do I make money? Explain. 3.Currently, the world experiences oil price shocks. In this regard, Tanzania sees global inflation going up. This means that the prices of goods that Tanzania imports from other countries are going up (i.e., goods are more expensive). Given that this is not just a one-time increase (i.e., inflation will stay higher in the world for a few years), the Bank of Tanzania (BoT) cannot control inflation in the rest of the world; therefore, there is little the BoT can do. The BoT has no role to play to control this imported inflation. a) Is this true? b) Would standard monetary policies to reduce inflation not work in this environment? c) Would it make a difference whether Tanzania has a fixed exchange rate or a flexible one?
Question: 1.Unlike countries with currency problems, China has used a fixed exchange rate to keep the value of its currency below its market level. What is likely to happen to China's imports, exports, and purchases of U.S. securities if the exchange rate is allowed to float? Explain your answer. 2.If I were to trade $1 as a base currency and the yen starts devaluating due to inflation, do I make money? Explain. 3.Currently, the world experiences oil price shocks. In this regard, Tanzania sees global inflation going up. This means that the prices of goods that Tanzania imports from other countries are going up (i.e., goods are more expensive). Given that this is not just a one-time increase (i.e., inflation will stay higher in the world for a few years), the Bank of Tanzania (BoT) cannot control inflation in the rest of the world; therefore, there is little the BoT can do. The BoT has no role to play to control this imported inflation. a) Is this true? b) Would standard monetary policies to reduce inflation not work in this environment? c) Would it make a difference whether Tanzania has a fixed exchange rate or a flexible one?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Provide Answer With Option Explanation
Transcribed Image Text:Question:
1.Unlike countries with currency problems, China has used a fixed exchange rate to keep the value of its currency below its market level. What is
likely to happen to China's imports, exports, and purchases of U.S. securities if the exchange rate is allowed to float? Explain your answer.
2.If I were to trade $1 as a base currency and the yen starts devaluating due to inflation, do I make money? Explain.
3.Currently, the world experiences oil price shocks. In this regard, Tanzania sees global inflation going up. This means that the prices of goods
that Tanzania imports from other countries are going up (i.e., goods are more expensive). Given that this is not just a one-time increase (i.e.,
inflation will stay higher in the world for a few years), the Bank of Tanzania (BoT) cannot control inflation in the rest of the world; therefore, there is
little the BoT can do. The BoT has no role to play to control this imported inflation.
a) Is this true?
b) Would standard monetary policies to reduce inflation not work in this environment?
c) Would it make a difference whether Tanzania has a fixed exchange rate or a flexible one?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education