RQ_Solution_Ch_20 - ECMC61 Chapter 20 Review Questions...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECMC61 – Chapter 20 Review Questions Answer Key Question 1: Problems #5 Suppose there is a favorable shift in the world demand for non-Norwegian EMU exports: The EMU Market: CA EMU AD EMU DD EMU shifts to the right to DD EMU (AD 1 ). Point B EMU is the equilibrium in the EMU market : Y EMU to Y EMU,1 , € appreciates against non-EMU currencies such as US$ to E 1 €/US$ . The Norwegian Market: Given the Norwegian krone is pegged to € when € appreciates against US$, the Norwegian krone appreciates against US$ as well, E krone/US$ to E 1 krone/US$ . Appreciation of krone will deteriorate its CA and leads to a movement along the DD Nor from point A Nor to point B Nor . When Y Nor L Nor (R Nor , Y Nor ) R Nor Norway experiences capital outflows Krone is under pressure to depreciate. To prevent deprecation of the krone, the Norwegian central bank buy krone and sells US$ until exchange rate returns to the official level. MS
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

RQ_Solution_Ch_20 - ECMC61 Chapter 20 Review Questions...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online