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) TRUE. The introduction of automatic teller machines reduces the demand for money. Decrease in the demand for money leads to a rightward shift in the LM curve. This leads to a decrease in the interest rate. As a result of a decrease in the interest rate there is an increase in net capital outflow. Increase in the net capital outflow puts the depreciative pressure on the domestic currency. In order to maintain the fixed exchange rate, the central bank has to buy back the domestic currency and sell more of the foreign currency. This leads to a decrease in money supply in the domestic Economy. Decrease in the money supply leads to a leftward shift in the LM curve and the LM curve comes back to its original position. So, there is no change in income and net Exports. So, the introduction of automatic teller machines which reduces the demand for money, according to the Mundell-Fleming model with fixed exchange rates have no change in income or net Exports.
2) FALSE. When the interest rate decreases, there is a downward movement along the IS Curve increasing the GDP. There is not any shift in the IS curve. Hence, the given statement is False.
The introduction of automatic teller machines, which reduces the demand for money, will,according to the Mundell–Fleming...
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...
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
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
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...
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...
According to the Mundell Fleming model an appreciation of the exchange rate will cause the LM* curve to A) shift to the right. B) shift to the left. C) remain unchanged. D) become flatter.
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...
When the money demand curve shifts right and the money supply is unchanged, the equilibrium price level decreases and the equilibrium value of money increases. true false The money supply in Grayfield is $8 billion. Nominal GDP is $32 billion and real GDP is $24 billion. The central bank of Grayfield has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 2.5 percent this year then the central bank of Grayfield will increase...
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...