Please draw a figure illustrating the actions the central bank must take to maintain a fixed exchange rate following an increase in output
What will be an ideal response?
A rise in output from to will increase the real money demand, so the central bank must purchase foreign assets and raise the money supply from to , in order to maintain a fixed exchange rate .
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Refer to Figure 15-7. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as a movement from
A) A to E. B) A to B. C) B to C. D) C to B. E) C to D.
Assume the output market adjusts more rapidly than the asset market. A point of disequilibrium that is below both AA and DD will therefore initially result in
A) an increase in output. B) a decrease in output. C) a contraction of the money supply. D) a depreciation of the home currency. E) an appreciation of the home currency.