Answered: Clearly explain the transmission…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

Clearly explain the transmission mechanism of a change in the rate of interest on a country’s Balance of Trade. Assume that you are analyzing this mechanism in the case of a country that has an open economy (trades with the rest of the world) and that the monetary authorities decide to lower the rate of interest ‘r’ to stimulate real output and employment. To begin with, assume that this country is operating at less-than full employment. How does a fall in ‘r’ affect a country that is a net exporter ? What would happen if this country is a net importer ? Finally, how does a fall in ‘r’ affect the rate of inflation, other things being constant ?

Definition Definition Difference in value of a country's net exports and net imports for goods and services in a given period. A positive balance of trade is called a surplus and coincides with more net cash inflows into a country; a negative balance of trade deficit is a deficit and results in net cash outflows. A balance of trade surplus or deficit doesn't necessarily indicate a positive or negative situation for a country.

Expert Solution

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions