Question 1: Are the statements below true or false? Explain the reasons for your answers. A country which decides to join a Monetary Union expects an increased ability to stabilize its output around...

ECS3350/ECS3122 Coursework
1. Students are required to type the answers on the coursework word file, save the word file and submit it online to Unihub.
2. Your name and Student ID needs to be included on the front of your submitted coursework.
3. Each answer should be short. Do feel free to make your points, but make them concise and clear. The word limit for answering each sub-question is 180.
4. The bold numbers in brackets indicate the maximum marks to be awarded for that part of the question. The total marks are 30. It contributes to 20% of the final marks.
Student ID:



Student Name:


Question 1: Are the statements below true or false? Explain the reasons for your answers.
a. A country which decides to join a Monetary Union expects an increased ability to stabilize its output around the full employment level and keep inflation low compared with its initial ability under flexible exchange rates.
(2.5 marks)
Answer:
The statement is ‘true’. This is because under monetary union, dealings would be done in single currency and there would be stability in the value of currency. Stability in the value of currency would reduce the risk and is likely to encourage more investment. Therefore we can expect an increased ability to stabilize its output around the full employment level and keep inflation low compared with its initial ability under flexible exchange rates.
b. Suppose that the United States is on a bimetallic standard at $35 to one ounce of gold and $3 for one ounce of silver. If new silver mines open and flood the market with silver, the two metals will circulate as before in the US since citizens could exchange their gold currency for silver currency at any time.
Answer:
The statement is true provided there is no change in the standard for one ounce of gold and silver. This is because if there is no change in the standard for metals, the distribution is likely to be same as before.
c. It is impossible for a country to run both current account surplus and capital account surplus in the same year.
Answer:
The statement is ‘true’. This is because the sum of current account balance and capital account balance must sum to zero. So if there is surplus in one account, other account would certainly have the deficit. Hence it is impossible for a country to run both current account surplus and capital account surplus in the same year.
Question 2: The graph below is the exchange rate of Japanese Yen to US dollar (¥/$) between August to November 2010. On 15th Sept, Yen moved from 83 to 85.7 yen per dollar due to the Japanese...