Question 1

Does it appear that currency boards make fixed exchange rates credible?

Accepted Answer

The answer of Does it appear that currency boards make...

Question 2

During 1991, Argentina's monetary law had a currency board. Explain and give an example.

Accepted Answer

The answer of During 1991, Argentina's monetary law had a...

Question 3

Describe the crisis in Russia starting from 1989. Explain why?

Accepted Answer

The answer of Describe the crisis in Russia starting from...

Question 4

Explain why East Asian countries have done so well relative to South American countries.

Accepted Answer

The answer of Explain why East Asian countries have done...

Question 5

What event started the Asian financial crisis in 1997?

Accepted Answer

The devaluation of Thailand's currency, the baht, in July 1997 is widely considered the event that triggered the Asian financial crisis. This led to a sharp loss of confidence in other Asian currencies, causing a domino effect that spread throughout the region.

Question 6

Does it appear that currency boards make low-inflation policies credible?

Accepted Answer

The answer of Does it appear that currency boards make...

Question 7

In the early 1960s South Korea was an extremely poor country. However, in 1963, the country began a remarkable economic ascent. What was a direct cause of this?

Accepted Answer

The shift in strategy to emphasize exports was a major factor in South Korea's economic ascent in the 1960s. This was achieved through the implementation of policies that encouraged investment in export-oriented industries and the creation of special economic zones. The resulting increase in exports fueled economic growth and helped to lift South Korea out of poverty.

Question 8

Explain the reasons for the economic "miracle" of the East Asian countries between 1960 and 1997. Is it only because of the common Asian practice of industrial policy and business-government cooperation?

Accepted Answer

The answer of Explain the reasons for the economic "miracle"...

Question 9

Describe the Asian financial crisis as it unfolds beginning with the devaluation of the Thai currency in July 1997, followed by the Malaysian, Indonesian and South Korean crises. As part of your answer, elaborate on the Malaysian response to the crisis versus its troubled neighbors responses.

Accepted Answer

The answer of Describe the Asian financial crisis as it...

Question 10

What weakness in the economic structures of Asian countries contributed to the severe financial crisis that Asian economies experienced in 1997?

Accepted Answer

The legal framework in Asian countries was weak and failed to deal successfully with companies in financial trouble. There was a lack of effective bankruptcy laws, resulting in "zombie companies" that were kept afloat with new loans and unable to contribute to economic growth. This led to a buildup of non-performing loans in the banking sector, which eventually caused the financial crisis. Other contributing factors include excessive borrowing, currency pegs, and a lack of transparency and accountability in financial systems.

Question 11

A currency board can ________ a country's ability to act as a lender of last resort.

Accepted Answer

A currency board limits a country's ability to act as a lender of last resort, as it is required to maintain a fixed exchange rate and hold sufficient foreign reserves to back its currency. This can restrict the government's ability to provide liquidity in times of financial crises.

Question 12

Based on the 1997 Crisis and your own experience, what are the main weaknesses of the East Asian economies?

Accepted Answer

The answer of Based on the 1997 Crisis and your...

Question 13

How would you define a currency board?

Accepted Answer

A currency board is a monetary system where the monetary base is backed entirely by foreign currency and the central bank holds no domestic assets. The domestic currency is therefore directly convertible into the anchor currency at a fixed exchange rate. This effectively ties the hands of the central bank and restricts their ability to carry out domestic monetary policy.

Question 14

Contrast the crisis in Poland and Russia. Explain why the Polish economy has done better?

Accepted Answer

The answer of Contrast the crisis in Poland and Russia....

Question 15

The problem of moral hazard has led

Accepted Answer

Moral hazard occurs when one party takes on excessive risk because they know another party (often the government or a financial institution) will bear the cost. This can lead to excessively speculative investments, as investors engage in riskier behavior knowing they are protected from the negative consequences.

Question 16

If a developing country institutes a currency board, it relinquishes control over having

Accepted Answer

By instituting a currency board, a developing country gives up its ability to independently set monetary policy, as the currency board ties the country's monetary policy to a fixed exchange rate with another currency.

Question 17

East Asia's crisis was relatively long lived because

Accepted Answer

East Asia's crisis was relatively long lived because its financial institutions had heavily encouraged borrowing in US dollars, which made their economies highly dependent on the stability of the dollar. When the dollar appreciated in value, East Asian currencies became overvalued, leading to a decline in exports and a rise in imports. At the same time, the increased cost of servicing dollar-denominated debt put significant pressure on East Asian financial institutions and made it difficult for them to provide credit, resulting in a financial crisis that lasted for several years.

Question 18

What is Argentina's Convertibility Law of April 1991? Explain.

Accepted Answer

The answer of What is Argentina's Convertibility Law of April...

Question 19

Economists Eichengreen and Hausmann coined the phrase original sin to describe developing countries inability to borrow in their own currencies. Where do they believe that this inability comes from? What are other beliefs on this topic?

Accepted Answer

The answer of Economists Eichengreen and Hausmann coined the phrase...

Question 20

What are the five major channels, which developing countries use to finance their external deficit?

Accepted Answer

The answer of What are the five major channels, which...

Quiz 22: Developing Countries: Growth, Crisis, and Reform