Use a figure to explain how a balance of payments crisis and its hand in capital flight
What will be an ideal response?
Suppose the foreign exchange market expects the government to devalue the currency in the future and adopt a new fixed exchange rate > . This leads to a rightward shift in the curve that measures the expected domestic currency return on foreign currency deposits. Since the exchange rate remains fixed at , the domestic interest rate must rise to R* + ( - )/ . The central bank must sell foreign reserves and shrink the money supply in response. This reserve loss accompanying a devaluation scare is labeled capital flight.
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A change in which of the following would NOT shift the supply curve for sneakers?
A) an increase in technology for making sneakers B) an increase in the price of rubber, used to make sneakers C) an increase in the price of sneakers D) None of the above, that is, each change shifts the supply curve
Demand-pull inflation is
A) inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply. B) inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply. C) inflation caused by reductions in short-run aggregate supply. D) inflation caused by reductions in long-run aggregate supply.