If The U.S. Federal Reserve Raise Its Benchmark Interest Rate By Three-Quarters Of A Percentage Point In An Attempt To Temper Record Inflation — The Biggest Hike Since 1994. That Follows A Quarter-Point Increase In March And A Half-Point Jump In May. (A) If The Exchange Rate Value Of The Dollar Remains Steady, What Are The Effects Of This Interest Rate Hike
If the U.S. Federal Reserve raise its benchmark interest rate by three-quarters of a percentage point in an attempt to temper record inflation — the biggest hike since 1994. That follows a quarter-point increase in March and a half-point jump in May.
(a) If the exchange rate value of the dollar remains steady, what are the effects of this interest rate hike on the U.S. national product and income? What are the possible effects on the U.S. unemployment rate? Explain.
(b) Following the interest hike, what is the likely pressure on the exchange rate value of the US dollar? Explain.
(c) What are the implications of the change in the exchange rate value of the dollar for US national product and unemployment? If you believe in the disequilibrium theory, what do you expect the exchange rate to change? Explain.
