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6 Cards in this Set
- Front
- Back
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What's the difference between sterilized and unsterilized intervention? |
Unsterilized = cause a change ->Interest Rates and Exchange Rates move in opposite Directions Sterilized = offset changes in monetary policy ->It would offset any changes made however. |
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What are Capital Controls? Why does it matter? |
-Capital Controls are government imposed restrictions on foreign investors buying domestic assets or on domestic investors buying foreign assets. -The Asian/Mexico currency crisis is believed to have resulted from capital inflows/outflows |
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Example: Is the Yen stronger or weaker if takes fewer Yen to buy a US dollar? |
The Yen is stronger relative to the US dollar. |
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Example: If the Bank of Japan wanted to weaken the Yen for exporters, what should it do? Why? |
The Bank of Japan should engage in monetary easing to lower interest rates which makes Japanese financial assets less desirable. This would cause the demand for the Yen to lower and increase unwanted supply of the Yen. |
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Example: Could the Bank of Japan reduce the value of the Yen by buying dollar-denominated assets, leaving interest rates unchanged? |
This is not possible. By buying the assets, monetary base would rise and interest rates would fall, the only way to offset this is by selling Japanese government bonds. However, this keep interest rates constant and the exchange rate would not change at all. |
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Did the gold standard make the Great Depression worse? |
US example: The US experience gold outflows, the Fed attempted to stem the outflows by raising the discount rate because higher I.R. attracted foreign investors. however, higher I.R. suppressed domestic spending. |
