Question

In a monetary model with floating exchange rates, what will happen to exchange rate, if the...

In a monetary model with floating exchange rates, what will happen to exchange rate, if the Central Bank of Turkey has decided to increase money supply? Discuss.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

If the Central Bank of Turkey has decided to increase the money supply, then the interest rates in Turkey would fall below the world interest rate. This would lead to a massive capital outflow from Turkey, so the Net Capital Outflow of Turkey would Increase.

Increase in the new capital Outflow of Turkey would lead to the depreciation of the Turkey's currency since there is floating exchange rate regime. Therefore, the exchange rate(defined as the price of foreign currency in terms of Domestic Currency) will increase.

Hence, if the Central Bank of Turkey has decided to increase money supply it will lead to an increase of Exchange Rate of Turkey.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary...
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary and fiscal policy.
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary...
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary and fiscal policy.
In the Mundell-Flemming model with floating exchange rates, explain what happens to aggregate income, the exchange...
In the Mundell-Flemming model with floating exchange rates, explain what happens to aggregate income, the exchange rate, and the trade balance if a quota on imported cars is implemented. Examine what would happen if exchange rates were fixed rather than floating? (10marks)
According to the asset approach to exchange rates, if the US has a floating exchange rate...
According to the asset approach to exchange rates, if the US has a floating exchange rate regime and the Feds decreases the money supply temporarily, the short-run effect will be to make The US interest rates ____ and the value of the US currency ____. a) rise, appreciate b) fall, depreciate c) fall, appreciate d) rise, depreciate
This question asks you to discuss a small open economy under a floating exchange rate regime....
This question asks you to discuss a small open economy under a floating exchange rate regime. What is the definition of a small open economy? What implications does this have for the interest rate? What is the difference between fixed exchange rates and floating exchange rates? In a small open economy with floatingexchange rates, what are the effects of fiscal expansion? What are the effects of monetary expansion? Explain why
"When a central bank expands the money supply," domestic interest rates rise and the exchange rate...
"When a central bank expands the money supply," domestic interest rates rise and the exchange rate rises domestic interest rates fall and the exchange rate rises domestic interest rates rise and the exchange rate falls domestic interest rates fall and the exchange rate falls
Under a system of floating exchange rates and high capital mobility, is monetary policy or fiscal...
Under a system of floating exchange rates and high capital mobility, is monetary policy or fiscal policy better suited for promoting internal balance? Why?
In a monetary model with fixed exchange rates, discuss short run and long run effect of...
In a monetary model with fixed exchange rates, discuss short run and long run effect of a devaluation on balance of payments.
PROBLEM 5:   MONETARY POLICY If the central bank of Canada institutes a contractionary monetary policy, describe...
PROBLEM 5:   MONETARY POLICY If the central bank of Canada institutes a contractionary monetary policy, describe what will happen to the following variables relative to what would happen without the policy: The money supply Interest rates Investment Consumption Net Exports The aggregate demand curve Real GDP The price level The value of the Canadian dollar The long run aggregate supply curve PROBLEM 5:   MONETARY POLICY If the central bank of Canada institutes a contractionary monetary policy, describe what will happen...
A country that has been operating under a fixed exchange-rate regime falls into recession. All attempts...
A country that has been operating under a fixed exchange-rate regime falls into recession. All attempts at using fiscal polecat to lift the economy out of recession have failed. 1. If the central bank was to use monetary policy to help lift the economy out of the recession, it would want to (change, decrease or increase) the money supply and (changes decrease or increase) interest rates in the economy. 2. This change in interest rates would cause net capital outflow...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT