Use an open market IS-LM diagram to explain the result of fiscal expansion under fixed exchange...
Use an open market IS-LM diagram to explain the result of fiscal expansion under fixed exchange rate system. What will happen to the IS and LM functions, equilibrium output, domestic interest rate, exchange rate level, capital flow, foreign exchange reserve and net exports? Explain your answer.
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Use an open market IS-LM diagram to explain the result of fiscal
expansion under fixed exchange...
IV. Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates....
IV. Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition. a. In an IS-LM-UIP diagram, show the effect of an increase in foreign output, Y", on domestic output, Y. Explain in words. b. In an IS-LM-UIP diagram, show the effect of an increase in the foreign interest rate,i on domestic output, Y. Explain in words. Given the discussion of the effects of fiscal policy in...
Please explain using Mundell-Flemming model and Foreign exchange Market Model. Show graphs. Please answer part b...
Please explain using Mundell-Flemming model and Foreign
exchange Market Model. Show graphs. Please answer part b and
c.
3. (16 marks total) Consider the Mundell-Fleming short-run small open economy model, with ri.e., no risk premium), and r given exogenously (a) (5 marks) Suppose foreign governments undertake a fiscal expansion, which raises the world interest rate Assuming the domestic central bank is operating a flexible ex- change rate, use an IS'-LM' diagram to show what happens to output and the exchange...
B3. Open Economy IS-LM-FE model: The behaviour of households and firms in an open economy is...
B3. Open Economy IS-LM-FE model: The behaviour of households and firms in an open economy is represented by the following equations: Full-employment outputY-1200 red consumption Cd = 350 + 0.5Y-200r : Desired investmentd 250-300r Government purchasesG 95 Net exports : NX = 100-01-05e Real exchange rate : 90. Assume that the real interest rate, r, does not deviate from the foreign interest rate and that the economy is initially in general equilibrium. ve the open-economy IS curve writing the real...
Venus Island is a small open economy with perfect capital mobility. The goods market, exchange rate...
Venus Island is a small open economy with perfect capital mobility. The goods market, exchange rate market and money market is in equilibrium when aggregate income/output is Y1, exchange rate is e1 and interest rate r1. Then the government implemented a contractionary fiscal policy. a. Use Mundell-Fleming model to show and explain, by referring to the events in the each of the markets, the predicted effects of the income tax increase. Assume that Venus Island uses a floating exchange rate....
Consider the Mundell-Fleming short-run model of a small open economy under floating exchange rates described by...
Consider the Mundell-Fleming short-run model of a small open economy under floating exchange rates described by the following equations (1) through (7). Assume that there are free capital flows and that interest rate parity holds so that where 5 is the world interest rate. (1) Cu 400+0.8 (Y-D: (2) 1 = 850-60r (3) G = 1200; (4) T=1000 + 0.25Y: (5) NX = 600 - 200e : (6) Y=C+I+G+ NX; (7) (M/P )= 0.5Y -50rt. Equation (6) is the goods...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic economy using a two panel diagram that illustrates equilibrium output and net exports. What is the effect on domestic output? On domestic net exports? b. If the interest rate remains constant, what will happen to domestic investment? If taxes are fixed, what will happen to the domestic budget deficit? c. What must happen to private saving? Explain. d. Foreign output does not appear in...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic economy using a two panel diagram that illustrates equilibrium output and net exports. What is the effect on domestic output? On domestic net exports? b. If the interest rate remains constant, what will happen to domestic investment? If taxes are fixed, what will happen to the domestic budget deficit? c. What must happen to private saving? Explain. d. Foreign output does not appear in...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic economy using a two panel diagram that illustrates equilibrium output and net exports. What is the effect on domestic output? On domestic net exports? b. If the interest rate remains constant, what will happen to domestic investment? If taxes are fixed, what will happen to the domestic budget deficit? c. What must happen to private saving? Explain. d. Foreign output does not appear in...
Macroland is a small open economy with perfect capital mobility and a fixed-exchange-rate system. Macroland is...
Macroland is a small open economy with perfect capital mobility and a fixed-exchange-rate system. Macroland is initially in the long-run equilibrium at the natural level of output with balanced trade. With the help of an appropriate diagram, compare the impact of a tax cut in the short run (when prices are fixed) and in the long run (when prices are flexible) on: 1. Output, 2. Consumption, 3. Investment, 4. Net exports 5. Exchange rate.
1. If a fixed exchange rate is set below the equilibrium rate in a fixed exchange...
1. If a fixed exchange rate is set below the equilibrium rate in a fixed exchange rate system it will create a deficit in the balance of payments. a surplus in the balance of payments. inflation. deflation. 2. Which of the following items is not a flow? A.Unilateral transfers. B. The increase in foreign assets held by Australian investors over a period of six months. C. Foreign exchange reserves lost by the Reserve Bank as a result of intervention in...
IV. Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition. a. In an IS-LM-UIP diagram, show the effect of an increase in foreign output, Y", on domestic output, Y. Explain in words. b. In an IS-LM-UIP diagram, show the effect of an increase in the foreign interest rate,i on domestic output, Y. Explain in words. Given the discussion of the effects of fiscal policy in...
Please explain using Mundell-Flemming model and Foreign
exchange Market Model. Show graphs. Please answer part b and
c.
3. (16 marks total) Consider the Mundell-Fleming short-run small open economy model, with ri.e., no risk premium), and r given exogenously (a) (5 marks) Suppose foreign governments undertake a fiscal expansion, which raises the world interest rate Assuming the domestic central bank is operating a flexible ex- change rate, use an IS'-LM' diagram to show what happens to output and the exchange...
B3. Open Economy IS-LM-FE model: The behaviour of households and firms in an open economy is represented by the following equations: Full-employment outputY-1200 red consumption Cd = 350 + 0.5Y-200r : Desired investmentd 250-300r Government purchasesG 95 Net exports : NX = 100-01-05e Real exchange rate : 90. Assume that the real interest rate, r, does not deviate from the foreign interest rate and that the economy is initially in general equilibrium. ve the open-economy IS curve writing the real...
Consider the Mundell-Fleming short-run model of a small open economy under floating exchange rates described by the following equations (1) through (7). Assume that there are free capital flows and that interest rate parity holds so that where 5 is the world interest rate. (1) Cu 400+0.8 (Y-D: (2) 1 = 850-60r (3) G = 1200; (4) T=1000 + 0.25Y: (5) NX = 600 - 200e : (6) Y=C+I+G+ NX; (7) (M/P )= 0.5Y -50rt. Equation (6) is the goods...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic economy using a two panel diagram that illustrates equilibrium output and net exports. What is the effect on domestic output? On domestic net exports? b. If the interest rate remains constant, what will happen to domestic investment? If taxes are fixed, what will happen to the domestic budget deficit? c. What must happen to private saving? Explain. d. Foreign output does not appear in...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic economy using a two panel diagram that illustrates equilibrium output and net exports. What is the effect on domestic output? On domestic net exports? b. If the interest rate remains constant, what will happen to domestic investment? If taxes are fixed, what will happen to the domestic budget deficit? c. What must happen to private saving? Explain. d. Foreign output does not appear in...
IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic economy using a two panel diagram that illustrates equilibrium output and net exports. What is the effect on domestic output? On domestic net exports? b. If the interest rate remains constant, what will happen to domestic investment? If taxes are fixed, what will happen to the domestic budget deficit? c. What must happen to private saving? Explain. d. Foreign output does not appear in...
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