In 2001 government of argentina faced large expenditures

Assignment Help Microeconomics

Reference no: EM13392099

In 2001, the government of Argentina faced large expenditures and tax revenues were low due to a recession, so Argentina was running a deficit. Printing money to pay for the deficit was not possible since Argentina had a currency board, which fixes the amount of cash which can be printed. Further, the government could not borrow abroad to finance the deficit. Foreign investors refused to lend because they feared Argentina would default. Therefore, the government forced local banks to make loans to the government. The government lowered the required reserve ratio, took the existing bank reserves, and gave the banks I.O.U.'s (bonds) which the government later defaulted on. Since the reserves were gone, the local banks were unable to repay depositors and went out of business.

a. At the end of the day, who paid for Argentina's deficit?

b. How should have depositors responded if they believed ahead of time that Argentina would default on the I.O.U.'s (bonds)?

c. Suppose depositors responded as in your answer to (b). What happens to:

1. the currency-to-deposit ratio? Why?

2. the money supply? why?

3. the price level? Why?

Reference no: EM13392099

Questions Cloud

Create memo to president of eec detailing the findings and : the president of eec recently called a meeting to announce that one of the firms largest suppliers of component parts

All of these unique customer services enable amazoncom : when karen went to amazon.com based on her past purchases the site asked her if she was interested in a new book by

Why was cio successful in organizing members in late 1930s : 1. why was the cio successful in organizing members in the late 1930s when it had the same one big union approach of

Marcel works in the linen department of a big department : marcel works in the linen department of a large department store. when a customer arrived friday morning to pick up a

In 2001 government of argentina faced large expenditures : in 2001 the government of argentina faced large expenditures and tax revenues were low due to a recession so argentina

Assume currency in circulation is 600 billion amount of : suppose the currency in circulation is 600 billion the amount of checkable deposits is 900 billion and excess reserves

Determine the role of the end-user in the database : what is the role of the end-user in the database development process? why is the relational approach to creating

If abcs incremental borrowing rate is 14 percent and the : abc inc. entered into a four-year lease of equipment for 9000 a year payable at the beginning of each year. the lessor

What is meant by foreign aid and write goal of foreign aid : describe developing countries and how they differ from industrial market economies. how can international trade aid

User Account

All Pages