Vecka 3 föreläsningar del 5

Question 1

What is the risk known as Balance of payment crisis (foreign exchange reserves crisis)?

Answer 1

If the market believes in a devaluation again, the currency has a risk of falling in value. then CB use foreign exchange reserves to buy SEK and pays with foreign currency. If CB foreign exchange rates are depleted, then they cannot continue the support purchases and you have to let the value fall (devalue) which makes the domestic interest rates high which lowers domestic demand increasing the need for further devaluation. Which makes future devaluation even more likely. CB repeats actions and the economy is in crisis which makes devaluation needed again. Ond spiral!

Question 2

What can a temporary expansionary monetary policy with a floating exchange rate do In the short term?

Answer 2

increase output and depreciate the exchange rate

Question 3

What can a temporary expansionary fiscal Policy with a floating exchange rate lead to In the short term?

Answer 3

increased output and an appreciation of the exchange rate

Question 3

What can monetary policy not be used to With a fixed exchange rate?

Answer 3

influence output.

Question 4

What can influence output In the short term when you have a fixed exchange rate?

Answer 4

fiscal policy

Question 5

What can Devaluation be used to but what does it increase the risk for?

Answer 5

influence output, but it increases the risk of a balance of payments crisis.