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

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

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

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

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

6. 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

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

8. 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

9. 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, http://ifs.apdi.net/imf/ (accessed January 16, 2006).

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

11. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-10 Real Loanable Funds Market: Economic Setting

12. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-11 Foreign Exchange Market: Thailand’s Fixed Exchange Rate

13. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-12 Foreign Investors Need First to Purchase Bahts

14. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-13 Central Bank Intervention Was Needed to Bring the Baht Back to Its Fixed Rate

15. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-14 Effect of the Bank of Thailand’s Purchases of U.S. Dollars

16. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-15 Thailand’s Money Supply and Bank Reserves, 1985–1995 Source: IMF, International Financial Statistics, http://ifs.apdi.net/imf/ (accessed January 16, 2006).

17. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-16 Interest Spread between the Thai Money Market Rate and U.S. Commercial Deposit Rate, 1985–1995 Source: IMF, International Financial Statistics Online, http://ifs.apdi.net/imf/ (accessed January 16, 2006).

18. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-17 Effect of the Thailand’s Increased Monetary Base on the Real Risk-Free Interest Rate

19. 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

20. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-18 Increasing Aggregate Demand Raised Thailand’s GDP Price Index and Real GDP

21. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-19 Banks in Thailand Had Stockholders’ Equity as Low as 3% of Assets

22. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-20 Thailand’s Asset Bubble Broke Causing Bank Assets and Stockholders’ Equity to Fall

23. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-21 The Baht Value of Banks’ Dollar Liabilities Rose as the Baht Depreciated

24. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-22 Economic Effects of Capital Outflows from Thailand

25. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-23 Economic Setting in Argentina’s Real Goods Market

26. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-24 Economic Setting in Argentina’s Real Loanable Funds Market

27. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-25 Economic Setting in the Dollar–Peso Foreign Exchange Market

28. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-26 Effect of Increased Government Borrowing on the Real Loanable Funds Market

29. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-27 Effects of a Net Increase in Aggregate Demand on the GDP Price Index and Real GDP

30. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-28 Effects of Rising Argentine Real GDP on Value of the Peso

31. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-29 Effects of Rising Argentine Prices on the Peso Value

32. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-30 Effects of a Rising Real Risk-free Interest Rate on the Peso’s Value

33. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-31 BCRA Intervenes to Fix the Peso Value

34. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-32 Central Bank Intervention Raises Argentina’s Monetary Base and BCRA’s International Reserves

35. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-33 Changes in Argentina’s Balance of Payments Assuming High-Mobility International Capital Markets

36. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-34 Changes in Argentina’s Balance of Payments Assuming Low-Mobility International Capital Markets

37. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-35 An Overview of Expansionary Fiscal Policy with Fixed Exchange Rates and High-Mobility International Capital Markets

38. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-36 An Overview of Expansionary Fiscal Policy with Fixed Exchange Rates and Low-Mobility International Capital Markets

39. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-37 Economic Effects of Expansionary Monetary Policy for a Nation with a Fixed Exchange Rate

40. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-38 Changes in the Value of the Peso

41. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-39 Effects of Intervention by BCRA to Raise the Peso’s Value

42. 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

43. 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

44. 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

45. 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

46. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 17-40 Effects of Expansionary Monetary Policy on Argentina’s Balance of Payments