For this final week, let’s discuss how monetary policy and fiscal policy interact with exchange rates. The value of a country’s currency can be harmed by volatility of exchange rates in the global economy. The devaluing of a country’s currency can have severe consequences on a country’s economy. Discuss the ways countries can use monetary and fiscal policy to stabilize their economy from changes in the foreign exchange market.
Lastly, let’s relate this to some current events. Read the article uk/economics-and-finance/greece-urgently-needs-more-debt-relief-will-it-get-it” target=”_blank”>”Greece urgently needs more debt relief—will it get it?” from Prospect Magazine. I found this quote interesting: “Casting an ominous shadow… is Greece’s skyscraper government debt, whose face value amounts to almost 180 per cent of GDP. That is double the level of around 90 per cent in Britain and the euro area. It is particularly worrying because Greece has a habit of reneging on its sovereign debt, having been in default for half the time since it gained independence in 1830.” [1]
Why has it been so difficult for Greece to address its debt? What lessons on monetary and fiscal policy can we learn from Greece? For further background on the Euro Crisis, you might want to read pages 676 to 686 in chapter 21 of the Krugman textbook.
[1] Wallace, P. (2018, May 16). Greece urgently needs more debt relief-will it get it? Retrieved from https://www.prospectmagazine.co.uk/economics-and-finance/greece-urgently-needs-more-debt-relief-will-it-get-it
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