To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

Question

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Answer 1

Question

Chapter 19, Problem 1QAP

a)

To determine

To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

a)

Expert Solution

Explanation of Solution

False, the given statement is false because the interest rate parity refers to keep the difference in the interest rate between the nations that change this into the forward exchange rate.

b)

To determine

To change: Whether the statement is true or false

b)

Expert Solution

Explanation of Solution

True, the given statement is true because the condition of interest rate parity shows that as there is an increase in expected exchange rate then there will be an appreciation of the domestic currency, keeping the other things constant.

c)

To determine

To change: Whether the statement is true or false

c)

Expert Solution

Explanation of Solution

It is true because if there is an expectation that the dollar will depreciate as compared to the yen over the next year then the interest rates will be greater in the U.S than Japan.

d)

To determine

To change: Whether the statement is true or false

d)

Expert Solution

Explanation of Solution

It is true, if there is appreciation in the expected exchange rate than the current exchange rate will immediately appreciate.

e)

To determine

To change: Whether the statement is true or false

e)

Expert Solution

Explanation of Solution

The statement is true because the central bank changes the magnitude of the exchange rate by varying their domestic rate of interest in relation to the foreign interest rate.

f)

To determine

To change: Whether the statement is true or false

f)

Expert Solution

Explanation of Solution

The given statement is false, that an increase in domestic interest rates, all other factors equal, does not increase exports.

g)

To determine

To change: Whether the statement is true or false

g)

Expert Solution

Explanation of Solution

It is false to state that a fiscal expansion tends to increase net export keeping all other factors equal.

h)

To determine

To change: Whether the statement is true or false

h)

Expert Solution

Explanation of Solution

The given statement is uncertain because the effect on output by the fiscal policy under fixed exchange rate and the flexible exchange rate is directly related to the economic situations. If the economic situations are in the favor of a fixed exchange rate then the output effect will be greater than the effect of flexible exchange rates or vice versa.

i)

To determine

To change: Whether the statement is true or false

i)

Expert Solution

Explanation of Solution

It is false, United States central bank − the Federal Reserve (the Fed) − is charged with ensuring a certain degree of stability within the financial system of the country. The Fed has unique resources to allow adjustments to broad monetary policies to enforce the expected fiscal policy of the Government

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Students have asked these similar questions

Assume the interest parity condition holds and that initially domestic and foreign interest rates are equal, i.e., i = i*. A reduction in the domestic interest rate will cause:an increase in the demand for the domestic currency.an immediate increase in the current domestic exchange rate, E.an expected appreciation of the domestic currency over time.all of the above

Identify two factors (or characteristics of economy) that underlie a nation’s decision to adopt a fixed exchange rate or a floating exchange rate.

The figure below illustrates the market for Bahamian dollars, where the price of the Bahamian dollar is valued in U.S. dollars. Assume that the Bahamian government wants to peg its currency to the U.S. dollar at a 1:1 ratio (one U.S. dollar = one Bahamian dollar). But the current exchange rate is at 90 cents (10 cents below the official peg). What must the Bahamian central bank do to return to the $1 exchange rate A. It would need to reduce the demand for the Bahamlan dollar. B. It would need to reduce the supply of the Bahamian dollar. C. It would need to Increase the supply of the Bahamian dollar. D. It would need to Increase the demand for the Bahamlan dollar. Part 2 Suppose you are a U.S. student and are thinking about visiting the Bahamas for spring break. You would rather the central bank intervened ___ (before or after) spring break. Part 3 Suppose that currently, the exchange rate is 1 Bahamian dollar for 1 U.S. dollar. The price of a Big Mac is $5 in the United States and 3.00…

Answer 2

Question

Chapter 19, Problem 1QAP

a)

To determine

To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

a)

Expert Solution

Explanation of Solution

False, the given statement is false because the interest rate parity refers to keep the difference in the interest rate between the nations that change this into the forward exchange rate.

b)

To determine

To change: Whether the statement is true or false

b)

Expert Solution

Explanation of Solution

True, the given statement is true because the condition of interest rate parity shows that as there is an increase in expected exchange rate then there will be an appreciation of the domestic currency, keeping the other things constant.

c)

To determine

To change: Whether the statement is true or false

c)

Expert Solution

Explanation of Solution

It is true because if there is an expectation that the dollar will depreciate as compared to the yen over the next year then the interest rates will be greater in the U.S than Japan.

d)

To determine

To change: Whether the statement is true or false

d)

Expert Solution

Explanation of Solution

It is true, if there is appreciation in the expected exchange rate than the current exchange rate will immediately appreciate.

e)

To determine

To change: Whether the statement is true or false

e)

Expert Solution

Explanation of Solution

The statement is true because the central bank changes the magnitude of the exchange rate by varying their domestic rate of interest in relation to the foreign interest rate.

f)

To determine

To change: Whether the statement is true or false

f)

Expert Solution

Explanation of Solution

The given statement is false, that an increase in domestic interest rates, all other factors equal, does not increase exports.

g)

To determine

To change: Whether the statement is true or false

g)

Expert Solution

Explanation of Solution

It is false to state that a fiscal expansion tends to increase net export keeping all other factors equal.

h)

To determine

To change: Whether the statement is true or false

h)

Expert Solution

Explanation of Solution

The given statement is uncertain because the effect on output by the fiscal policy under fixed exchange rate and the flexible exchange rate is directly related to the economic situations. If the economic situations are in the favor of a fixed exchange rate then the output effect will be greater than the effect of flexible exchange rates or vice versa.

i)

To determine

To change: Whether the statement is true or false

i)

Expert Solution

Explanation of Solution

It is false, United States central bank − the Federal Reserve (the Fed) − is charged with ensuring a certain degree of stability within the financial system of the country. The Fed has unique resources to allow adjustments to broad monetary policies to enforce the expected fiscal policy of the Government

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Answer 3

Question

Chapter 19, Problem 1QAP

a)

To determine

To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

a)

Expert Solution

Explanation of Solution

False, the given statement is false because the interest rate parity refers to keep the difference in the interest rate between the nations that change this into the forward exchange rate.

b)

To determine

To change: Whether the statement is true or false

b)

Expert Solution

Explanation of Solution

True, the given statement is true because the condition of interest rate parity shows that as there is an increase in expected exchange rate then there will be an appreciation of the domestic currency, keeping the other things constant.

c)

To determine

To change: Whether the statement is true or false

c)

Expert Solution

Explanation of Solution

It is true because if there is an expectation that the dollar will depreciate as compared to the yen over the next year then the interest rates will be greater in the U.S than Japan.

d)

To determine

To change: Whether the statement is true or false

d)

Expert Solution

Explanation of Solution

It is true, if there is appreciation in the expected exchange rate than the current exchange rate will immediately appreciate.

e)

To determine

To change: Whether the statement is true or false

e)

Expert Solution

Explanation of Solution

The statement is true because the central bank changes the magnitude of the exchange rate by varying their domestic rate of interest in relation to the foreign interest rate.

f)

To determine

To change: Whether the statement is true or false

f)

Expert Solution

Explanation of Solution

The given statement is false, that an increase in domestic interest rates, all other factors equal, does not increase exports.

g)

To determine

To change: Whether the statement is true or false

g)

Expert Solution

Explanation of Solution

It is false to state that a fiscal expansion tends to increase net export keeping all other factors equal.

h)

To determine

To change: Whether the statement is true or false

h)

Expert Solution

Explanation of Solution

The given statement is uncertain because the effect on output by the fiscal policy under fixed exchange rate and the flexible exchange rate is directly related to the economic situations. If the economic situations are in the favor of a fixed exchange rate then the output effect will be greater than the effect of flexible exchange rates or vice versa.

i)

To determine

To change: Whether the statement is true or false

i)

Expert Solution

Explanation of Solution

It is false, United States central bank − the Federal Reserve (the Fed) − is charged with ensuring a certain degree of stability within the financial system of the country. The Fed has unique resources to allow adjustments to broad monetary policies to enforce the expected fiscal policy of the Government

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 19, Problem 1QAP

a)

To determine

To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

a)

Expert Solution

Explanation of Solution

False, the given statement is false because the interest rate parity refers to keep the difference in the interest rate between the nations that change this into the forward exchange rate.

b)

To determine

To change: Whether the statement is true or false

b)

Expert Solution

Explanation of Solution

True, the given statement is true because the condition of interest rate parity shows that as there is an increase in expected exchange rate then there will be an appreciation of the domestic currency, keeping the other things constant.

c)

To determine

To change: Whether the statement is true or false

c)

Expert Solution

Explanation of Solution

It is true because if there is an expectation that the dollar will depreciate as compared to the yen over the next year then the interest rates will be greater in the U.S than Japan.

d)

To determine

To change: Whether the statement is true or false

d)

Expert Solution

Explanation of Solution

It is true, if there is appreciation in the expected exchange rate than the current exchange rate will immediately appreciate.

e)

To determine

To change: Whether the statement is true or false

e)

Expert Solution

Explanation of Solution

The statement is true because the central bank changes the magnitude of the exchange rate by varying their domestic rate of interest in relation to the foreign interest rate.

f)

To determine

To change: Whether the statement is true or false

f)

Expert Solution

Explanation of Solution

The given statement is false, that an increase in domestic interest rates, all other factors equal, does not increase exports.

g)

To determine

To change: Whether the statement is true or false

g)

Expert Solution

Explanation of Solution

It is false to state that a fiscal expansion tends to increase net export keeping all other factors equal.

h)

To determine

To change: Whether the statement is true or false

h)

Expert Solution

Explanation of Solution

The given statement is uncertain because the effect on output by the fiscal policy under fixed exchange rate and the flexible exchange rate is directly related to the economic situations. If the economic situations are in the favor of a fixed exchange rate then the output effect will be greater than the effect of flexible exchange rates or vice versa.

i)

To determine

To change: Whether the statement is true or false

i)

Expert Solution

Explanation of Solution

It is false, United States central bank − the Federal Reserve (the Fed) − is charged with ensuring a certain degree of stability within the financial system of the country. The Fed has unique resources to allow adjustments to broad monetary policies to enforce the expected fiscal policy of the Government

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 19, Problem 1QAP

a)

To determine

To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

a)

Expert Solution

Explanation of Solution

False, the given statement is false because the interest rate parity refers to keep the difference in the interest rate between the nations that change this into the forward exchange rate.

b)

To determine

To change: Whether the statement is true or false

b)

Expert Solution

Explanation of Solution

True, the given statement is true because the condition of interest rate parity shows that as there is an increase in expected exchange rate then there will be an appreciation of the domestic currency, keeping the other things constant.

c)

To determine

To change: Whether the statement is true or false

c)

Expert Solution

Explanation of Solution

It is true because if there is an expectation that the dollar will depreciate as compared to the yen over the next year then the interest rates will be greater in the U.S than Japan.

d)

To determine

To change: Whether the statement is true or false

d)

Expert Solution

Explanation of Solution

It is true, if there is appreciation in the expected exchange rate than the current exchange rate will immediately appreciate.

e)

To determine

To change: Whether the statement is true or false

e)

Expert Solution

Explanation of Solution

The statement is true because the central bank changes the magnitude of the exchange rate by varying their domestic rate of interest in relation to the foreign interest rate.

f)

To determine

To change: Whether the statement is true or false

f)

Expert Solution

Explanation of Solution

The given statement is false, that an increase in domestic interest rates, all other factors equal, does not increase exports.

g)

To determine

To change: Whether the statement is true or false

g)

Expert Solution

Explanation of Solution

It is false to state that a fiscal expansion tends to increase net export keeping all other factors equal.

h)

To determine

To change: Whether the statement is true or false

h)

Expert Solution

Explanation of Solution

The given statement is uncertain because the effect on output by the fiscal policy under fixed exchange rate and the flexible exchange rate is directly related to the economic situations. If the economic situations are in the favor of a fixed exchange rate then the output effect will be greater than the effect of flexible exchange rates or vice versa.

i)

To determine

To change: Whether the statement is true or false

i)

Expert Solution

Explanation of Solution

It is false, United States central bank − the Federal Reserve (the Fed) − is charged with ensuring a certain degree of stability within the financial system of the country. The Fed has unique resources to allow adjustments to broad monetary policies to enforce the expected fiscal policy of the Government

Answer 6

Chapter 19, Problem 1QAP

a)

To determine

To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

a)

Expert Solution

Explanation of Solution

False, the given statement is false because the interest rate parity refers to keep the difference in the interest rate between the nations that change this into the forward exchange rate.

Answer 7

Chapter 19, Problem 1QAP

a)

To determine

To change: Whether the statement “the interest rate parity condition shows that across the country interest rate is the same” is true or false

Answer 8

a)

Expert Solution

Explanation of Solution

False, the given statement is false because the interest rate parity refers to keep the difference in the interest rate between the nations that change this into the forward exchange rate.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

To determine

To change: Whether the statement is true or false

b)

Expert Solution

Explanation of Solution

True, the given statement is true because the condition of interest rate parity shows that as there is an increase in expected exchange rate then there will be an appreciation of the domestic currency, keeping the other things constant.

Answer 13

b)

To determine

To change: Whether the statement is true or false

Answer 14

b)

Expert Solution

Explanation of Solution

True, the given statement is true because the condition of interest rate parity shows that as there is an increase in expected exchange rate then there will be an appreciation of the domestic currency, keeping the other things constant.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

To determine

To change: Whether the statement is true or false

c)

Expert Solution

Explanation of Solution

It is true because if there is an expectation that the dollar will depreciate as compared to the yen over the next year then the interest rates will be greater in the U.S than Japan.

Answer 19

c)

To determine

To change: Whether the statement is true or false

Answer 20

c)

Expert Solution

Explanation of Solution

It is true because if there is an expectation that the dollar will depreciate as compared to the yen over the next year then the interest rates will be greater in the U.S than Japan.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

d)

To determine

To change: Whether the statement is true or false

d)

Expert Solution

Explanation of Solution

It is true, if there is appreciation in the expected exchange rate than the current exchange rate will immediately appreciate.

Answer 25

d)

To determine

To change: Whether the statement is true or false

Answer 26

d)

Expert Solution

Explanation of Solution

It is true, if there is appreciation in the expected exchange rate than the current exchange rate will immediately appreciate.

Answer 27

d)

Expert Solution

Answer 28

d)

Expert Solution

Answer 29

Expert Solution

Answer 30

e)

To determine

To change: Whether the statement is true or false

e)

Expert Solution

Explanation of Solution

The statement is true because the central bank changes the magnitude of the exchange rate by varying their domestic rate of interest in relation to the foreign interest rate.

Answer 31

e)

To determine

To change: Whether the statement is true or false

Answer 32

e)

Expert Solution

Explanation of Solution

The statement is true because the central bank changes the magnitude of the exchange rate by varying their domestic rate of interest in relation to the foreign interest rate.

Answer 33

e)

Expert Solution

Answer 34

e)

Expert Solution

Answer 35

Expert Solution

Answer 36

f)

To determine

To change: Whether the statement is true or false

f)

Expert Solution

Explanation of Solution

The given statement is false, that an increase in domestic interest rates, all other factors equal, does not increase exports.

Answer 37

f)

To determine

To change: Whether the statement is true or false

Answer 38

f)

Expert Solution

Explanation of Solution

The given statement is false, that an increase in domestic interest rates, all other factors equal, does not increase exports.

Answer 39

f)

Expert Solution

Answer 40

f)

Expert Solution

Answer 41

Expert Solution

Answer 42

g)

To determine

To change: Whether the statement is true or false

g)

Expert Solution

Explanation of Solution

It is false to state that a fiscal expansion tends to increase net export keeping all other factors equal.

Answer 43

g)

To determine

To change: Whether the statement is true or false

Answer 44

g)

Expert Solution

Explanation of Solution

It is false to state that a fiscal expansion tends to increase net export keeping all other factors equal.

Answer 45

g)

Expert Solution

Answer 46

g)

Expert Solution

Answer 47

Expert Solution

Answer 48

h)

To determine

To change: Whether the statement is true or false

h)

Expert Solution

Explanation of Solution

The given statement is uncertain because the effect on output by the fiscal policy under fixed exchange rate and the flexible exchange rate is directly related to the economic situations. If the economic situations are in the favor of a fixed exchange rate then the output effect will be greater than the effect of flexible exchange rates or vice versa.

Answer 49

h)

To determine

To change: Whether the statement is true or false

Answer 50

h)

Expert Solution

Explanation of Solution

The given statement is uncertain because the effect on output by the fiscal policy under fixed exchange rate and the flexible exchange rate is directly related to the economic situations. If the economic situations are in the favor of a fixed exchange rate then the output effect will be greater than the effect of flexible exchange rates or vice versa.

Answer 51

h)

Expert Solution

Answer 52

h)

Expert Solution

Answer 53

Expert Solution

Answer 54

i)

To determine

To change: Whether the statement is true or false

i)

Expert Solution

Explanation of Solution

It is false, United States central bank − the Federal Reserve (the Fed) − is charged with ensuring a certain degree of stability within the financial system of the country. The Fed has unique resources to allow adjustments to broad monetary policies to enforce the expected fiscal policy of the Government

Answer 55

i)

To determine

To change: Whether the statement is true or false

Answer 56

i)

Expert Solution

Explanation of Solution

It is false, United States central bank − the Federal Reserve (the Fed) − is charged with ensuring a certain degree of stability within the financial system of the country. The Fed has unique resources to allow adjustments to broad monetary policies to enforce the expected fiscal policy of the Government