8/13/2019 HE206 Exam 2006/07 Sem 2
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HE206
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NANYANG TECHNOLOGICAL UNIVERSITY
SEMESTER 2 EXAMINATION 2006-2007
HE206 - International Monetary Economics
April/May 2007 Time Allowed: 2 hours
INSTRUCTIONS
1 This paper contains TWO(2)questions and comprises
TWO(2)pages.
2 Answer all TWO(2)questions.
3 The number of marks allocated is shown at the end of each
question.
4 Begin your answer to each question on a separate page of the
answer book.
5 Answers will be graded for content and appropriate
presentation.
___________________________________________________________________________
Question 1
Illustrate with a diagram and explain your answers to each of
the following questions.
(a) With consecutive high GDP growth rates, the Chinese RMB was
under tremendouspressure to appreciate against the US dollar.
However, the Chinese government had
fixed her exchange rate at RMB8.27 per US dollar. What can the
Peoples Bank of
China do with US dollars and her money supply in order to hold
the exchange rate
fixed at RMB8.27 per US dollar?
(15 marks)
(b) Suppose that the Peoples Bank of China eventually revalued
her currency toRMB7.75 per US dollar. What would be the impacts of
revaluation on Chinas output,
official reserves and money supply?
(15 marks)
(c) In order to peg her exchange rate against US dollar, why
should Hong Kong have toforgo monetary independence to maintain her
free movement of capital?
(10 marks)
(TOTAL: 40 marks)
8/13/2019 HE206 Exam 2006/07 Sem 2
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HE206
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Question 2
Suppose that the United States has adopted an expansionary
policy. Illustrate with a diagram
and explain your answers to each of the following questions.
(a) What would happen to its private saving, investment and
trade balance according tothe national saving identity?
(10 marks)
(b) What would happen to its exchange rate, output and current
account according to theDD-AA model?
(10 marks)
(c) If the expansionary monetary policy is a permanent one,
given that the Euro isfreely traded in financial markets, what
would be the short-run effects on the
dollar/Euro exchange rate and interest rate in the US?
(10 marks)
(d) In the long run, what would be the dollar/Euro exchange rate
and price level in USA?
(10 marks)
(e) Suppose that the US is in full employment. What would be the
short-run and long-run effects of a permanent increase in money
supply on US output?
(10 marks)
(f) If the expansionary monetary policy has resulted in
inflation in the United States.What would happen to Chinese
inflation and exchange rate if China were to maintain
her internal and external balance?
(10 marks)
(TOTAL: 60 marks)
- END OF PAPER -
