Explain why an increase in the central bank’s foreign reserves (foreign assets) is equivalent to an increase in the money supply
economics
Description
2. Explain why an increase in the central bank’s foreign reserves (foreign assets) is equivalent to an increase in the money supply
3. Using the quarterly data (seasonally adjusted), make a figure that is similar to Figure 49 in Lecture note 8. Comment on the dynamic changes in Japan’s current account balance.
4. Why does fixing the exchange rate mean losing monetary policy autonomy? Explain.
5. Using the IS-LM-FX model, explain the following statement. “A fixed exchange rate is preferred to a floating (flexible) exchange rate when shocks to
the economy are predominantly affect the economy’s asset markets; however,
if the majority of shocks affects the output market, a floating exchange rate is
desirable.”
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