A small open economy with a fixed exchange rate e2 is initially at equilibrium A with IS1*, and equilibrium output Y1. If there is an increase in government spending to ISI* the new equilibrium will be at holding everything else constant. Lutfen birini seçin
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- Evaluate the following statement: "if lower exchange rates increase a nation's exports, the govermment should do everything in its power to anure that the exchange rate for its cumency is an low as it can possbly be This statement does nat acknowledge that lower exchange rates OA couid result in a reluctance from other countries to accept this nation's currency for payment of any goodn or services OB. could make a currency virtually worthless. O C. make a nation's imports more expensive. COD. None of the above responses are acknowledged by the statement.A case study in the chapter analyzed purchasingpower parity for several countries using the pricc ofBig Macs. Here arc data for a few more countries: a. For each country, compute the predicted exchangerate of the local currency per U.S. dollar. (Recallthat the U.S. price o( a Big Mac was $4.93.)b. According to purchasing-power parity, what is thepredicted exchange rate between the Hungarianforint and the Canadian dollar? What is the actualexchange rate?c. How well docs the theory of purchasing-powerparity explain exchange rates?Suppose the United States decides to subsidize theexport of U.S. agricultural products, but it does notincrease taxes or decrease any other governmentspending to offset this expenditure. Using a threepanel diagram, show what happens to nationalsaving, domestic investment, net capital outflow, theinterest rate, the exchange rate, and the trade balance.Also explain in words how this U.S. policy affects theamount of imports, exports, and net exports.
- QUESTION 1 Consider an OLG economy where each generation has 20 bananas when young, and 0 bananas when old. Suppose central bank prints out 2 unit of money, give to gen 0 for free. Solve for equilibrium exchange rate "1 money - ?? bananas". QUESTION 2 Under the equilibrium exchange rate you solved in the previous question, what is cy for each generation with money? QUESTION 3 Under the equilibrium exchange rate you solved in the previous question, what is co for each generation with money?Consider a country with a flexible exchange rate, and which initially has a current account surplus of zero. Then, suppose there IS an anticipated InCrease in tuture total tactor productivity. a) Determine the eauilibrium etects on the domestic economv in the case where there are no capita. controls. In particular, show that there will be a current account dehicit when arms and consumers anticipate the increase in future total factor productivity. b) Now, suppose that the government dislikes current account deficits, and that It imposes capital controls in an attempt to reduce the current account deficit. With the anticipated increase in future total factor productivity, what will be the equilibrium efects on the economy? Do the capital controls have the desired efect on the current account deficit? Do capital controls dampen the effects of the shock to the economy on output and the exchange rate? Are capital controls sound macroeconomic policy in this context? Why or why not?Ac Fraw MAA International Finance: Quir 9 23300 OEUROPILE Suppose the cost of a car produced in the United States is $17,000. The current exchange rate is US$10.50 Instructions: Round your answers to two decimal places. a What is the cost of the car in euros? C C ZOMBIE b. Suppose the exchange rate changes to US$1 C0.65 What is the new euro cost of the car? € c At the new exchange rate, the quantity of U.S. cors demanded by those holding euros will likely (Click to seet) H N PRINC Help + Save & Ext
- In an open economy, a permanent beneficial suply shock (s< 0)implie tha the domestic real exchange rate wil: Oappreciate as the est of the word buys the domestic curency Oremain unchanged because of fsetig movements n he domestic prie level Oremain unchanged because of ffseting movements in realinteret rates Odepreciate so as to crowd-in net exportsSuppose that Americans decide to increase theirsaving.a. If the elasticity of U.S. net capital outflow withrespect to the real interest rate is very high, willthis increase in private saving have a large orsmall effect on U.S. domestic investment?b. If the elasticity of U.S. exports with respect to thereal exchange rate is very low, will this increase inprivate saving have a large or small effect on theU.S. real exchange rate?c. Assume the recession in Braveland causes a decrease in the demand forMacroland dollars in the foreign exchange market. Braveland’s currency is the euro.i. Explain whether the euro will appreciate, depreciate, or remainunchanged against the dollarii. Draw a correctly labeled graph of the foreign exchange market fordollars and show the effect of the decrease in demand for dollars on theexchange rate for dollars. d. Macroland implements a combination of expansionary fiscal and monetary policies. What will be the effect of these policies on each of the following?i. Aggregate demand in Macrolandii. The price level in Macroland iii. Explain the effects of expansionary fiscal policies on interest rates inMacroland.iv. Explain the effects of expansionary monetary policies on interest rates in Macroland.
- In an open economy under flexible exchange rates where the central bank keeps money supply fixed, a tax cut will cause an increase in which of the following?net exportsthe exchange rate, Eexportsall of the abovenone of the aboveIn the Mundell-Flemming model with floating exchange rates, explain whathappens to aggregate income, the exchange rate and the trade balance whentaxes are reduced. Contrast what would happen if exchange rates were fixedrather than floating?In a large open economy, if an import quota is adopted, then: net exports remain unchanged, as imports and exports decrease by equal amounts, while the real exchange rate rises. net exports rise and the real exchange rate falls. net exports rise and the real exchange rate rises. net exports remain unchanged, as imports and exports decrease by cqual amounts, while the real exchange rate falls O O