Use the three-panel diagram for the open economy (inclusive of the economy's loanable funds market and the exchange market) to answer the following questions: a) The ongoing conflict between Russia and Ukraine has raised expectations of recession in the regional economy. A considerable number of companies from a wide array of industries have taken steps toward divesting their operations in Ukraine. Discuss the corresponding implications on Ukraine's real interest rate, net capital outflow, real exchange rate, and net export. b) It is argued that reducing a country's government budget deficit will also reduce its trade deficit. Do you agree? How would this change affect the exchange rate of this country's currency? Explain. c) Suppose that, with the government reducing its borrowing, international investors become more confident in the economy of the underlying country. How would these affect the value of the currency of this country? How would it affect the trade deficit? Explain.

Use the three-panel diagram for the open economy (inclusive of the economy's loanable funds market and the exchange market) to answer the following questions: a) The ongoing conflict between Russia and Ukraine has raised expectations of recession in the regional economy. A considerable number of companies from a wide array of industries have taken steps toward divesting their operations in Ukraine. Discuss the corresponding implications on Ukraine's real interest rate, net capital outflow, real exchange rate, and net export. b) It is argued that reducing a country's government budget deficit will also reduce its trade deficit. Do you agree? How would this change affect the exchange rate of this country's currency? Explain. c) Suppose that, with the government reducing its borrowing, international investors become more confident in the economy of the underlying country. How would these affect the value of the currency of this country? How would it affect the trade deficit? Explain.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: A Macroeconomic Theory Of The Open Economy

Section14.1: Supply And Demand For Loanable Funds And For Foreign-currency Exchange

Problem 1QQ

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