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C= C0 + cYD
YD = Y
I = I0 - br
NX = N0 - n1Y + n2Yf + n3R
M/P = M0 + m0Y - m1.r
where AD = C + I + G0 + NX.
What is the impact of M0 and G0 on the equilibrium value of R. That is, discuss the role of
monetary policy and fiscal policy on the real exchange rate.
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- Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?The benefits of adopting a flexible exchange rate is that, a.in response to shocks to the demand for Australian exports, the value of the currency would adjust to moderate these effectsb. changes in the interest rate will have no effect on the exchange rate that is determined in the foreign exchange market c.the exchange rate can be more volatile d. an economy will be able to well predict the prices of exports and imports Why A is the correct answer? What is meant by a flexible exchange rate?
- For a given real exchange rate how are a country s For a given real exchange rate, how are a country’s net exports affected by an increase in domestic income? an increase in foreign income? How does an increase in the domestic real interest rate affect the real exchange rate and net exports? Explain. For a given real exchange rate how are a country sQ3-19 The IS/LM/BP analysis suggests that, if the BP curve is flatter than the LM curve and the exchange rate is flexible, expansionary fiscal policy will lead to _______ of the country's currency.This will make the fiscal policy _______ effective in influencing national income than if the country had a fixed exchange rate. Select one: a. a depreciation / more b. a depreciation / less c. an appreciation / more d. an appreciation / lessWhat types of money flow out of the US? The direction of net capital flows is determined by what? What is an exchange rate between dollars and Euros? What does it mean when a country’s currency depreciates in the foreign exchange markets? Who wins and who loses in an economy when its currency devaluates in the foreign exchange market? need answer . absuletlyupvote !
- Consider the following economy:- Mariginal propensity to save = 0.2 Mariginal propensity to import = 0.2 Investment = $500 Governement spending = $300 Taxes = $ 200 Exports = $400 Autonomous import spending = $100 Given this information, if governemnt spending falls by $50, what is the change in current account balance? A: -$35 B: -$15 C: -$75 D: $35 E - None of the aboveConsider the extent to which fiscal policy actions can influence the real income level of a small open economy with imperfect capital mobility and a fixed exchange rate. In a response of at least 100 words, explain how the Central Bank of Brazil could utilize its own foreign exchange reserves to prevent Brazil's sovereign wealth fund from preventing changes in the real's value in foreign exchange markets?2. Graphically show the impact of the following on the real exchange rate and the trade balance (a) Biden's administration passes large spending bill (b) World governments engages in expansionary fiscal policy.
- 2. Use the DD-AA model to analyze the impact of a transitory decrease in the Foreign interest rate R* on the domestic economy. (Use the “standard” DD/AA model where changes in the interest rate have no effect on the DD curve.). Note: You can use one (large!) diagram to answer questions (a) and (b). (a) If the country operates with a flexible exchange rate regime what impact will this have on the country’s exchange rate E, level of domestic output Y, and the level of the country’s Current Account (CA) balance? Briefly explain. (b) If the country operates with a fixed exchange rate regime what impact will this have on the country’s money supply M, level of domestic output Y, and the level of the country’s Current Account (CA) balance? Briefly explain.Consider the following economy:- Mariginal propensity to save = 0.2 Mariginal propensity to import = 0.2 Investment = $500 Governement spending = $300 Taxes = $ 200 Exports = $400 Autonomous import spending = $100 Given this information, beginning at the intial equilibirum output, suppose instead that exports rise by 50. What is the change in current account balance? A: -$25 B: $45 C: -$75 D: $35 E - None of the aboveSuppose that real interest rates increase acrossEurope. Explain how this development affectsU.S. net capital outflow. Then explain how it affectsU.S. net exports by using a formula from the chapterand by drawing a diagram. What happens to theU.S. real interest rate and real exchange rate?
