Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. CHAPTER 17 Economic Shocks to Nations with Fixed Exchange Rates

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-1 Fixed Exchange Rate Set at Equilibrium

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-2 Fixed Exchange Rate Set below Equilibrium

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-3 Fixed Exchange Rate Set above Equilibrium

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-4 Central Bank Intervention When the Dollar Is Undervalued

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-5 Change in the Monetary Base If the Exchange Rate Is Set below Equilibrium

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-6 Central Bank Intervention When the Dollar Is Overvalued

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-7 Change in China’s Monetary Base If the Fixed Exchange Rate Is Set above Equilibrium

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-8 Unemployment Rate in Thailand, 1985–1995 Source: International Monetary Fund (IMF), International Financial Statistics Online, (accessed January 16, 2006).

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-9 Thailand’s Real Goods Market: Economic Setting

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Real Loanable Funds Market: Economic Setting

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Foreign Exchange Market: Thailand’s Fixed Exchange Rate

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Foreign Investors Need First to Purchase Bahts

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Central Bank Intervention Was Needed to Bring the Baht Back to Its Fixed Rate

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effect of the Bank of Thailand’s Purchases of U.S. Dollars

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Thailand’s Money Supply and Bank Reserves, 1985–1995 Source: IMF, International Financial Statistics, (accessed January 16, 2006).

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Interest Spread between the Thai Money Market Rate and U.S. Commercial Deposit Rate, 1985–1995 Source: IMF, International Financial Statistics Online, (accessed January 16, 2006).

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effect of the Thailand’s Increased Monetary Base on the Real Risk-Free Interest Rate

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M17-1 Earning Profits by Borrowing Dollars and Investing in Baht Assets

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Increasing Aggregate Demand Raised Thailand’s GDP Price Index and Real GDP

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Banks in Thailand Had Stockholders’ Equity as Low as 3% of Assets

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Thailand’s Asset Bubble Broke Causing Bank Assets and Stockholders’ Equity to Fall

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit The Baht Value of Banks’ Dollar Liabilities Rose as the Baht Depreciated

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Economic Effects of Capital Outflows from Thailand

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Economic Setting in Argentina’s Real Goods Market

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Economic Setting in Argentina’s Real Loanable Funds Market

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Economic Setting in the Dollar–Peso Foreign Exchange Market

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effect of Increased Government Borrowing on the Real Loanable Funds Market

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effects of a Net Increase in Aggregate Demand on the GDP Price Index and Real GDP

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effects of Rising Argentine Real GDP on Value of the Peso

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effects of Rising Argentine Prices on the Peso Value

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effects of a Rising Real Risk-free Interest Rate on the Peso’s Value

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit BCRA Intervenes to Fix the Peso Value

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Central Bank Intervention Raises Argentina’s Monetary Base and BCRA’s International Reserves

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Changes in Argentina’s Balance of Payments Assuming High-Mobility International Capital Markets

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Changes in Argentina’s Balance of Payments Assuming Low-Mobility International Capital Markets

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit An Overview of Expansionary Fiscal Policy with Fixed Exchange Rates and High-Mobility International Capital Markets

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit An Overview of Expansionary Fiscal Policy with Fixed Exchange Rates and Low-Mobility International Capital Markets

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Economic Effects of Expansionary Monetary Policy for a Nation with a Fixed Exchange Rate

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Changes in the Value of the Peso

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effects of Intervention by BCRA to Raise the Peso’s Value

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M17-2 Accounting Entries When BCRA Sells Dollars in the Foreign Exchange Market to a Foreign Resident

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M17-3 Effects of Central Bank Intervention on Argentina’s Balance of Payments When the Counterparty Is a Foreign Resident

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M17-4 Accounting Entries When BCRA Sells Dollars in the Foreign Exchange Market

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M17-5 Effects of Central Bank Intervention on Argentina’s Balance of Payments When the Counterparty Is an Argentine Resident

Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit Effects of Expansionary Monetary Policy on Argentina’s Balance of Payments