Question 6. (20 points) Use the Mundell-Fleming model and diagrams to predict what would happen to...
Question 6. (20 points) Use the Mundell-Fleming model and diagrams to predict what would happen to aggregate income, the exchange rate, and the trade balance under both floating and fixed exchange rates in response to each of the following policies in a small open economy.
a. (10 points) Government of Canada cuts taxes.
b. (10 points) Bank of Canada increases money supply
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Question 6. (20 points) Use the Mundell-Fleming model and
diagrams to predict what would happen to...
answer the following: d. In the Mundell-Fleming model with floating exchange rates, explain what happens to...
answer the following:
d. In the Mundell-Fleming model with floating exchange rates, explain what happens to aggregate income, the exchange rate, and the trade balance when taxes are raised. What would happen if exchange rates were fixed rather than floating?
Macroeconomics: Intermediate Theory/ Calc-based 4. Consider an economy that abides by a Mundell Fleming model. Capital...
Macroeconomics: Intermediate Theory/ Calc-based
4. Consider an economy that abides by a Mundell Fleming model. Capital is imperfectly mobile, prices are perfectly sticky in the short run, and the exchange rate is fixed. Assume that the current exchange rate is at its tar get and the current domestic interest rate is equal to the foreign interest rate. Suppose the local central bank wants to stimulate economic activity by increasing the supply of money through conventional open market oper- ations. Which...
please help with question 8 8) Use the Mundell-Fleming model to answer the following questions about...
please help with question 8
8) Use the Mundell-Fleming model to answer the following questions about the province of Alberta (a small open economy). a) What kind of exchange-rate system does Alberta have with its major trading partners (the provinces of British Columbia and Ontario)? b) If Alberta suffers from a recession, should the provincial government use monetary or fiscal policy to stimulate employment? Explain. (Note: For this question, assume that the provincial government can print dollar bills). c) If...
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...
Exercise 3 (7 points): According to Mundell-Fleming (IS-LM-BP) model, which are the consequences (i.e the new...
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...
Use the model of the small open economy (Apply the small open economy model of real...
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)....
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...
Use the model of the small open economy (Apply the small open economy model of real...
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)....
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....
1: what would happen to national saving, investment, trade balance interest rate, and real exchange rate...
1: what would happen to national saving, investment, trade balance interest rate, and real exchange rate in responding to an increase in tariff on imported cars by the domestic government? graphically explain with the help of large open economy 2: what do you mean by trade policies? it's argued that protectionist trade policy benefits only local producers whereas society on the average suffers from it, do you agree with the statement? graphically explain considering a model of small open economy?
answer the following:
d. In the Mundell-Fleming model with floating exchange rates, explain what happens to aggregate income, the exchange rate, and the trade balance when taxes are raised. What would happen if exchange rates were fixed rather than floating?
Macroeconomics: Intermediate Theory/ Calc-based
4. Consider an economy that abides by a Mundell Fleming model. Capital is imperfectly mobile, prices are perfectly sticky in the short run, and the exchange rate is fixed. Assume that the current exchange rate is at its tar get and the current domestic interest rate is equal to the foreign interest rate. Suppose the local central bank wants to stimulate economic activity by increasing the supply of money through conventional open market oper- ations. Which...
please help with question 8
8) Use the Mundell-Fleming model to answer the following questions about the province of Alberta (a small open economy). a) What kind of exchange-rate system does Alberta have with its major trading partners (the provinces of British Columbia and Ontario)? b) If Alberta suffers from a recession, should the provincial government use monetary or fiscal policy to stimulate employment? Explain. (Note: For this question, assume that the provincial government can print dollar bills). c) If...
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...
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...
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...
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