IMF part 2

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• absolute purchasing power parity P = EP* all countries price levels are equal when measured in terms of the same currency
• currency board a monetary system where the monetary base is fully backed by foreign currency, with no domestic assets (A=0)
• expenditure switching pool a policy that redirects demand between domestic goods and imports
• economic stability loss a country loses control over monetary policy and currency fluctuations
• Fisher effect a rise/fall in expected inflation rate will eventually cause an equal rise/fall on the inflation rate
• Eurobank a bank that accepts deposits denominated in eurocurrencies
• seigniorage the real resources a government earns when its prints money that is spends on G/S
• forward exchange rate is an agreed-upon exchange rate that will occur at a future date
• balance on primary income is the part of the current account and measures income earned from foreign investments minus income paid to foreign investors
• sudden stop is a situation where a country suddenly loses access to foreign capital, causing a financial crisis
• Bretton woods system all currencies were set at a fixed exchange rate against the US dollar and all currencies were then exchanged at a fixed rate
• national savings the part of output not used for consumption or government spending
• The case against floating exchange rates discipline, injury to international trade and investment, uncoordinated economic polices
• official international reserves foreign assets held by central banks to protect against economic trouble
• monetary efficiency gain the country becomes more efficient by avoiding the uncertainty and costs of floating exchange rates
• Under what circumstances might a substantial currency account deficit pose no problem to a country? if the borrowed money is used for productive investments that will earn revenue in the future
• Mention at least two reasons why an excessive current account surplus would be a problem for a country. low investment at home, risk not getting back the money lent to foreigners

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