Question

1) Explain what the World Bank and the IMF are and the goals of both.

2) What are a fixed exchange rate and a floating exchange rate?

3) If the U.S. Federal Reserve Bank increases the money supply, what happens to the value of the U.S. dollar and the exchange rate?

4) If the U.S. government increases the deficit and Federal Debt, what happens to the value of the U.S. dollar?

5) When did the U.S. go off of the Gold Standard?

Answer 1

1. World bank provide long term assistance where as International monetary fund provides short term assistance.

World bank provides

1. Long term investments loans

2. Reconstruction and territory development

3. Balanced growth of International trade

4. Technical and advisory assistance

International monetary fund provides

1. Stable exchange ratea

3. Short term assistance

4. Machinery for consultation

2. Fixed and Floating are two types of exchange rates. Fixed is a stable exchmage rate system in which a country fixes a specific exchange rate of its currency in terms of its foreign currency.

Floating is a free or flexible exchange rate which is determined by the interaction between the demand and supply of foreign exchange and are free to fluctuate.

3. If U.S. federal reserve bank increases the money supply, the value of the U.S Dollar depreciate. It leads to increase in inflation. And hence weakens the market demand, increase in exports and dollar value weakens.

4. If the U.S government increases the deficit and federal debt, it will decrease the value of the dollar.

5. In 1971, the US go off of the Gold standard when president Richard M. Nixon abondon the gold standard.