1.) The introduction of automatic teller machines, which reduces the demand for money, will,according to the Mundell–Fleming model with fixed exchange rates have no change in income or net exports.
True
False
Reduction in the demand for money due to the automatic teller machine is like an autonomous decline in the demand for money. This will shift the LM curve to the right leading to lower interest rate at each level of income. In a Mundell-Fleming Model, such a decline in the interest rate will cause capital outflow as investors will move to countries with comparatively higher interest rate. This will raise the demand for foreign currency and foreign investors will convert their holdings of domestic currency into foreign currency. This will put pressure on the exchange rate depreciate. However, there is fixed exchange rate regime so the Central Bank will intervene in the foreign exchange market and will buy domestic currency and will ensure that there is no depreciation of the domestic currency. As a result, there will be no change in income or net exports. So, the statement given is True.
1.) The introduction of automatic teller machines, which reduces the demand for money, will,according to the...
1.) The introduction of automatic teller machines, which reduces the demand for money, will,according to the Mundell–Fleming model with fixed exchange rates have no change in income or net exports. True False 2.) The introduction of automatic teller machines, which reduces the demand for money, will, according to the Mundell–Fleming model with floating exchange rates, lead to a rise in both income and net exports. True False 3.) The IS curve shifts to the right when interest rates decreases thereby...
The introduction of automatic teller machines, which reduces the demand for money, will,according to the Mundell–Fleming model with fixed exchange rates have no change in income or net exports. True False The IS curve shifts to the right when interest rates decreases thereby increasing GDP. True False
1.) The introduction of automatic teller machines, which reduces the demand for money, will, according to the Mundell–Fleming model with floating exchange rates, lead to a rise in both income and net exports. True False
The introduction of automatic teller machines, which reduces the demand for money, will, according to the Mundell–Fleming model with floating exchange rates, lead to a rise in both income and net exports. True False If the Fed announces that it will fix the exchange rate at 100 yen per dollar, but with the current money supply the equilibrium exchange rate is 150 yen per dollar, then the money supply must be increased to maintain the Fed's announcement. True False
Exercise 3 (7 points): According to Mundell-Fleming (IS-LM-BP) model, which are the consequences (i.e the new equilibrium compared with the equilibrium position before the policy) of an increase in public expenditure if exchange rates are fixed and there is capital immobility? 1 Increase in net exports, same income 21 Increase in income, reduction in net exports Incrase of income, depreciation of the exchange [3] Increase in the interest rate, decrease of income. [1 same income, same interest rate; ® Increase...
Problem 2 (4 points) a) Show graphically using the Mundell-Fleming model the of an introduction of export promotion tools (that improve net exports exogenously, irrespective of the exchange rate). Assume that a country has a fixed exchange rate and perfect capital mobility. (2 p) b) Will the introduction of export promotion policy tools improve net exports (current account balance) in equilibrium, as argued by many politicians? Provide an appropriate graph and explain. (2 p) Problem 2 (4 points) a) Show...
The management of BNZ bank is considering an investment in automatic teller machines. The machines would cost $513,000 each and have a useful life of 7 years. The bank’s finance manager has estimated that the automatic teller machines will save the bank $110,000 per machine during each year of their life. The machines will have no residual value. Ignore company income taxes. You are required to: a) Calculate the payback period for the proposed investment. b) Calculate the net present...
The management of Iroquois National Bank is considering an investment in automatic teller machines. The machines would cost $131,100 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $28,500 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the payback...
Money Demand According to Liquidity Preference Theery, why is the Money Demand curve downwaed sloping? a because interest rates rise as the Bank of Canada reduces the quantity of money demanded b. because interest rates fall as the Bank of Canada reduces the Money Supply c because people will want to hold less money as the cost of doing so fals d. because people will want to hold more money as the cost of doing so falls Money Demand and...
A small economy stays at full employment. The authorities decide to change the structure of demand in order to increase investment. What should be the mix of fiscal and monetary policy if there is no international mobility of capital and the economy has fixed exchange rates? Show your results drawing the necessary diagram. (Mundell-Fleming model)