1. Illustrate and describe the effects of expansionary monetary policy in a small open economy that allows their currency to float. What are the effects on r, e and Y?

A booming economy can attract financial capital inflows, which promote further growth. However, capital can just as easily flow out of the country, leading to economic recession. Is a country whose economy is booming because It decided to stimulate consumer spending more or less likely to experience capital flight than an economy whose boom Is caused by economic investment expenditure?

Use the demand-and-supply of foreign currency graph to determine what would happen to a small, open economy that experienced capital outflows.

Explain the relationship between a current account deficit or surplus and the flow of funds.

What are some of the reasons a central bank is likely to care, at least to some extent, about the exchange rate?

If the government wants to O decrease; contractionary O increase; expansionary O increase; only rules-based O decrease: expansionary the value of its currency in the foreign exchange market, it can use monetary policy.

Currently, it takes two Belize dollars to buy a U.S. dollar. If that number were to rise to three, then the Belize currency would have (appreciated, depreciated) and it would be (more, less) expensive for American tourists to vacation in Belize. Select one: a. depreciated; less. O b. depreciated; more O c. appreciated; less. O d. appreciated; more. Next page page to search

4. What factors will shift the supply and demand for currency?

1. Describe the law of association. What are its assumptions? 2. What is the difference between “fixed” and “floating” exchange rate regimes? 3. What are the economic consequences of money “hoarding”? 4. Briefly describe the process by which money emerges from a state of barter.

5. How exchange rates can affect a firm’s global sales.?