The Following Citation Is from the Wall Street Journal's Article

question 44

Essay

The following citation is from the Wall Street Journal's article "Central Bankers Hone Tools to Pop Bubbles," July 9,2013 (http: / / goo.gl / cCkklC)
"With interest rates very low in much of the world,cheap money is everywhere,even flooding into smaller economies such as Israel's.The money is driving up Israel's currency,threatening its important export sector.That presents Israel's central bank with a dilemma: Raising interest rates would likely exacerbate the problem by boosting the currency further,but low rates can fuel a borrowing binge,particularly for home buying."
a.Using the exchange rate determination model NCO-NX,show how does the money "flooding into smaller economies such as Israel's" drive up Israel's currency.How does this threaten Israel's export sector?
b.Using the liquidity preference model and the NCO-NX model,show how "raising interest rates would likely exacerbate the problem."
c.Explain the dilemma that the Israeli central bank faces.Why is this issue important for the economy?

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Definitions:

Formal Authority

The power given to an individual within an organization based on their position, allowing them to make decisions, direct others, and enforce obedience.

Practicing Stewardship

The responsible overseeing and protection of something considered worth caring for and preserving, often relating to environmental or resource management.

Articulating A Vision

The process of clearly expressing a future direction or goal of an organization or group to inspire and guide stakeholders.

Power Hungry

Having an insatiable desire for control, authority, or influence over others.