【正文】 ities of other countries mitted to peg the exchange rate values of their currencies to the . dollar. The . monetary authority mitted to buy and sell gold in exchange for dollars with other countries39。 monetary authorities at a fixed dollar price of gold. c. To a large extent speculation was stabilizing, both for the fixed rates followed by most countries, and for the exchange rate value of the Canadian dollar, which floated during 195062. However, the pegged exchange rate values of currencies sometimes did e under speculative pressure. International investors and speculators sometimes believed that they had a oneway speculative bet against currencies that were considered to be in trouble.” If the country did manage to defend the pegged exchange rate value of its currency, the investors betting against the currency would lose little. They stood to gain a lot of profit if the currency was devalued. Furthermore, the large speculative flows against the currency required large interventions to defend the currency39。s pegged value, so that the government was more likely to run so low on official reserves that it was forced to devalue.12. a. The dollar bloc and the euro bloc. A number of countries peg their currencies to the . dollar. A number of European countries use the euro, and, in addition, a number of other countries peg their currencies to the euro. b. The other major currencies that float independently include (as of the beginning of 2002) the Japanese yen, the British pound, the Canadian dollar, and the Swiss franc. c. The exchange rates between the . dollar and the other major currencies have been floating since the early 1970s. The movements in these rates exhibit trends in the long run—over the entire period since the early 1970s. The rates also show substantial variability or volatility in the short and medium runs—periods of less than one year to periods of several years. The long run trends appear to be reasonably consistent with the economic fundamentals emphasized by purchasing power parity—differences in national inflation rates. The variability or volatility in the short or medium run is controversial. It may simply represent rational responses to the continuing flow of economic and political news that has implications for exchange rate values. The effects on rates can be large and rapid, because overshooting occurs as rates respond to important news. However, some part of the large volatility may also reflect speculative bandwagons that lead to bubbles that subsequently burst.Chapter 72. Disagree. In a sense a national government cannot go bankrupt, because it can print its own currency. But a national government can refuse to honor its obligations, even if it might be able to pay. If the benefit from not paying exceeds the cost of not paying, the government may rationally refuse to pay. And, a national government can run short of foreign currency to pay obligations denominated in foreign currency, because it cannot print foreign money.4. The debt crisis in 1982 was precipitated by (a) increased cost of servicing debt, because of a rise in interest rates in the United States and other developed countries as tighter monetary policies were used to fight inflation, (b) decreased export earnings in the debtor countries, because of decreased demand and lower modity prices as the tighter monetary policies resulted in a world recession, and (c) an investor shift to curtailing new lending and trying to get old loans repaid quickly, once it became clear that (a) and (b) would lead to some defaults.6. With free international lending Japan lends 1,800 (= 6,000 4,200) to America, at point T. If Japan and America each impose a 2 percent tax on international lending, the total tax is 4 percent. The gap WZ restores equilibrium, and the amount lent internationally declines to 600 (= 6,000 5,400). The interest rate in Japan (and the one received net of taxes by Japan’s international lenders) is 3 percent and the interest rate in America (and the one paid including taxes by America’s international borrowers) is 7 percent. (The difference is the 4 percent of taxes.) Japan’s government collects internationallending tax revenues equal to area r, but this is effectively paid by Japanese lenders who see their earnings on the 600 of foreign lending that continues decline by this amount. The net effect on Japan is a loss of area n because the taxes prevent some previously profitable lending from occurring. America’s government collects tax revenues equal to area k, but this is effectively paid by American borrowers who must pay a higher interest rate on their foreign borrowing. The net effect on America is a loss of area j because of the decline in international borrowing.8. a. The increase in the interest rate rotates the line showing the debt service due, which is also the benefit from not repaying, upward to (1 + i162。)D from (1 + i)D. The threshold amount of debt beyond which the country’s government should default declines to Dlim162。 from Dlim. This change can lead to default, even if the country’s government would not default before the change, if the actual amount of debt is between Dlim162。 and Dlim. b. The increase in the cost of defaulting causes an upward shift to C162。 from C in the curve showing the costs of not repaying. In this case the threshold increases to Dlim162。 from Dlim. This change cannot lead to default if the country would not default before the change.10. If a default has no other effect on Puglia, its government should default when the cost of servicing the debt (interest paid plus repayment of principal) is larger than the inflow of funds. This occurs at the end of year 3, so the Puglian government should default at that time.Chapter 82. Disagree. The recession in the United States reduces . national ine, so . residents reduce spending on all kinds of things, including spending on imports.