Homework Answers
An expansion will increase the amount of money in the hand of people and they will demand more. This will include more imports i.e. the demand form the foreign goods. if it was a flexible exchange rate it will depreciate the currency and stop the fund flow. In a fixed exchange rate higher imports will cause a larger deficit in the current account. It will force the central bank to rais ethe interest rate and negate the effect of the monetary expansion.
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How does monetary expansion affect the current account under a fixed exchange rate?
III. Monetary policy under flexible exchange rates a. How does a monetary expansion in an economy...
III. Monetary policy under flexible exchange rates a. How does a monetary expansion in an economy with flexible exchange rates affect consumption and investment? b. How does a monetary expansion in an economy with flexible exchange rates affect net exports?
According to the Mundell-Fleming model, under: a. floating exchange rates, a monetary expansion raises income, whereas...
According to the Mundell-Fleming model, under: a. floating exchange rates, a monetary expansion raises income, whereas a fiscal expansion does not, but under fixed exchange rates, a fiscal expansion raises income, whereas a monetary expansion does not b. both floating and fixed exchange rates, a monetary expansion raises income, but a fiscal expansion does not. both floating and fixed exchange rates, a fiscal expansion raises income, but a monetary expansion does not. d. floating exchange rates, a fiscal expansion raises...
The ECB's new chairperson considers that the current policy of monetary expansion poses more risks than...
The ECB's new chairperson considers that the current policy of monetary expansion poses more risks than solutions and decides to raise the interest rate. How does it affect the euro/dollar exchange rate?
Efforts to stimulate the economy using expansionary monetary policy are ineffective under a fixed exchange rate...
Efforts to stimulate the economy using expansionary monetary policy are ineffective under a fixed exchange rate system, but can be effective under a floating rate system. Explain in some detail.
1. Using the Mundell-Fleming model, describe the effects of: (a) A fiscal expansion under fixed and...
1. Using the Mundell-Fleming model, describe the effects of: (a) A fiscal expansion under fixed and flexible exchange rate regimes (30 per cent of marks) (b) A monetary expansion under fixed and flexible exchange rate regimes (30 per cent of marks) (c) An increase in the world interest rate under fixed and flexible exchange rate regimes (40 per cent of marks)
A country with a floating exchange rate faces a short-run recession and current account deficit. Policymakers...
A country with a floating exchange rate faces a short-run recession and current account deficit. Policymakers want to use temporary expansionary monetary policy to increase both output and the current account balance. Will they be successful? Only with increasing output Only with increasing the current account balance No, not with either goal Yes, with both goals In the short run, if taxes rise, output will_and the exchange rate will increase; appreciate increase; depreciate decrease; appreciate decrease; depreciate With a fixed...
Contractionary Monetary Policy: A) Using the exchange rate market model, illustrate and explain how the monetary...
Contractionary Monetary Policy: A) Using the exchange rate market model, illustrate and explain how the monetary policy action identified above may affect the exchange rate. Identify the new equilibrium on the diagram as point B. B) Using the IS-LM model, illustrate and explain how the economy and the unemployment rate may be impacted as a result of the change in the exchange rate in part a. Identify the new equilibrium on the diagram as point B.
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.
explain why monetary autonomy is impossible on its own with a fixed exchange rate using IS/LM...
explain why monetary autonomy is impossible on its own with a fixed exchange rate using IS/LM or the trilemma, and why monetary policy must accompany fiscal policy with a fixed exchange rate
(i) Explain the difference between the nominal and real interest rate. (ii) How does the Reserve...
(i) Explain the difference between the nominal and real interest rate. (ii) How does the Reserve Bank of Australia control the interest rate? (iii) You hear a news report that output growth and inflation are lower than expected. How do you expect that report to affect market interest rates? Explain why. (iv) The Reserve Bank faces a large recessionary gap. How would you expect it to respond? Explain step by step how its policy change is likely to affect the...
III. Monetary policy under flexible exchange rates a. How does a monetary expansion in an economy with flexible exchange rates affect consumption and investment? b. How does a monetary expansion in an economy with flexible exchange rates affect net exports?
According to the Mundell-Fleming model, under: a. floating exchange rates, a monetary expansion raises income, whereas a fiscal expansion does not, but under fixed exchange rates, a fiscal expansion raises income, whereas a monetary expansion does not b. both floating and fixed exchange rates, a monetary expansion raises income, but a fiscal expansion does not. both floating and fixed exchange rates, a fiscal expansion raises income, but a monetary expansion does not. d. floating exchange rates, a fiscal expansion raises...
A country with a floating exchange rate faces a short-run recession and current account deficit. Policymakers want to use temporary expansionary monetary policy to increase both output and the current account balance. Will they be successful? Only with increasing output Only with increasing the current account balance No, not with either goal Yes, with both goals In the short run, if taxes rise, output will_and the exchange rate will increase; appreciate increase; depreciate decrease; appreciate decrease; depreciate With a fixed...
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