Assume a country is in a fixed exchange rate regime. Now suppose that individuals expect that policy makers will revalue its currency. Explain the various actions that policy makers can choose in response to this expected revaluation
What will be an ideal response?
Policy makers can attempt to persuade (via official announcements) that they remain committed to pegging the currency at its current rate. Second, they may have to reduce domestic interest rates to prevent any appreciation of the currency. Eventually, they may be forced to revalue because of the expansionary effects of the lower i.
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Under a fractional reserve banking system,
A) banks keep a fraction of their reserves on hand as deposits. B) banks keep all of their reserves on hand as deposits. C) banks keep a fraction of their deposits on hand as reserves. D) banks keep all of their deposits on hand as reserves.
The water and diamond paradox is explained by the fact that the total utility of water is higher than the total utility of diamonds, but the marginal utility of water is lower than the marginal utility of diamonds. Which of the following goods, when compared, have total and marginal utilities that best reflect the water and diamond paradox, although certainly not as vividly?
a. cake and ice cream b. wine and soft drinks c. jewelry and tattoos d. bread and caviar e. horses and automobiles