Provide whether each of following is True or False. e. An overvalued exchange rate is represented...

Provide whether each of following is True or False. e. An overvalued exchange rate is represented graphically by horizontal line above S/D intersection in International Market; produces an Overall Balance of Payments deficit and a fall in Reserves, and is maintained by the central bank buying foreign exchange with domestic money. f. For an expansionary fiscal policy, a business with lots of floating rate debt, that sells primarily to foreign markets, and makes those products using primarily domestic inputs, will be benefitted in all 3 areas, when exchange rate is flexible, debt default concerns are low, and international interest rate response is weak. g. All 4 following macroeconomic outcomes would be regarded as undesirable: Inflation Rate of -4%, Current Account Deficit of 15% of GDP, Reserves to Short Term Debt Ratio of .33, Real Interest Rate of 2%. h. All of following underlying conditions help a country achieve rapid rates of long run economic growth: high domestic investment rate, low inflation, inward FDI, strong primary and secondary education system, use of EPZs, inward technology transfers.

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Expert Solution

e. An overvalued exchange rate is represented graphically by horizontal line above S/D intersection in International Market; produces an Overall Balance of Payments deficit and a fall in Reserves, and is maintained by the central bank buying foreign exchange with domestic money.

False.

f. For an expansionary fiscal policy, a business with lots of floating rate debt, that sells primarily to foreign markets, and makes those products using primarily domestic inputs, will be benefitted in all 3 areas, when exchange rate is flexible, debt default concerns are low, and international interest rate response is weak.

True

g. All 4 following macroeconomic outcomes would be regarded as undesirable: Inflation Rate of -4%, Current Account Deficit of 15% of GDP, Reserves to Short Term Debt Ratio of .33, Real Interest Rate of 2%.

True

h. All 4 following macroeconomic outcomes would be regarded as undesirable: Inflation Rate of -4%, Current Account Deficit of 15% of GDP, Reserves to Short Term Debt Ratio of .33, Real Interest Rate of 2%.

False

Rahul Sunny answered 10 months ago

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