Panem is a small open economy. Its residents has become more optimistic about their future. What will happen to Panem’s trade balance and real exchange rate? Explain using your own words and a figure.
Aggregate demand = Consumption + Investment + Government spending + Exports - Imports
Optimistic people will raise investment level by producers and consumption by consumers. Both of these factors combined will increase aggregate demand which raise price level in the economy.
Rise in domestic price will reduce exports as foreign consumers will find domestic goods more expensive. Reduced exports will reduce net exports. Rise in domestic price means there is rise in real exchange rate.
Panem is a small open economy. Its residents has become more optimistic about their future. What...
24) Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. Which of the following will happen in the short run? a. Aggregate demand will shift to the left. b. Output will decline. c. Unemployment will decline. d. Prices will decline.
If consumers are more optimistic about their future (they expect taxes to be reduced, economy will continue to prosper), will most people save more or less than before? Does national saving rise or fall? What will happen to real interest rate. Please give detailed explanation.
Use the model of the small open economy (Apply the small open economy model of real exchange rate determination ) to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events. draw a graph (be sure to label all points, shifts and curves) and provide a short verbal analysis of the impact on the trade balance, the real exchange rate and the nominal exchange rate)....
Suppose Country X is a small open economy with a huge trade deficit. Recently, her government suggests a reduction in income tax. Using the Classical Theories, explain what will happen to net capital outflow and real exchange rate in the long run. Explain the impact on the size of her trade deficit.
18. Suppose businesses become more optimistic about their future profitability after a new businessfriendly president is elected. According to Ch. 3, the equilibrium level of investment spending (I) 4 a. will increase and the real interest rate (r) will increase. b. will not change and the real interest rate will increase. c. and the real interest rate will both be unchanged. d. will decrease and the real interest rate will increase
i need answers and explanations 35. With the low unemployment rate, households become more optimistic about the future economy and decide to increase their spending on durable goods such as automobiles. According to the model of the market for loanable funds, A) real interest rate and the quantity of loanable funds will remain unchanged. B) real interest rate will increase and the quantity of loanable funds will decrease. C) real interest rate will decrease and the quantity of loanable funds...
Question 3 (10 Marks): Assume that Canada is a small open economy which uses a system of fixed exchange rates. The economy is in equilibrium when there is a sudden decrease in real money demand. Explain what will happen to the exchange rate, output, and the real interest rate in the short-run and in the long-run. Question 4 (10 Marks): Assume that Canada is a small open economy which uses a system of flexible exchange rates. The economy is in...
3. Assume that Canada is a small open economy which uses a system of fixed exchange rates. The economy is in equilibrium when there is a sudden decrease in real money demand. Explain what will happen to the exchange rate, output, and the real interest rate in the short-run and in the long-run
4. Assume that Canada is a small open economy which uses a system of flexible exchange rates. The economy is in equilibrium when there is a sudden decrease in real money demand. Explain what will happen to the exchange rate, output, and the real interest rate in the short-run and in the long-run
Consider an economy at full employment. If consumers and firms become less optimistic about the future economy then O unemployment will rise O price levels will rise. O output will rise. If the economy is in an expansionary period, appropriate policies to pursue may include: O business investment incentives that shift the AD curve to the left. a reduction in government spending that shifts the AD curve to the left. O an income tax cut that shifts the AD curve...