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12.7: Exercises for Chapter 12
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- Is its balance of payments in deficit or surplus? Why?
- What change in official exchange reserves would you see? Why?
- Is the central bank buying or selling foreign currency?
- What effect does the central bank's foreign currency purchase or sale have on the monetary base? Explain why.
- The demand for foreign exchange and the demand curve for foreign exchange.
- The supply of foreign exchange and the supply curve for foreign exchange.
- The equilibrium exchange rate.
- How a decline in exports would affect the foreign exchange rate.
- How exports and imports would change to give balance of payments equilibrium at the new equilibrium exchange rate.
- The effects, if any, on the holdings of official reserves.
- Equilibrium with a fixed exchange rate.
- The effect of a decline in exports on conditions in the foreign exchange market when the exchange rate is fixed.
- The amount of the purchase or sale of foreign exchange reserves required if the central bank defends the fixed exchange rate.
- The effects of a change in the holdings of official reserves and the monetary base as a result of the defence of the fixed exchange rate.