In a small open economy with flexible exchange rates and perfectly flexible prices, how does an...
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a small open economy with flexible exchange rates and perfectly
flexible prices, how does an...
14. Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the...
14. Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the world consists of a small open economy (we call this domestic) and the rest of the world (we call this foreign). Answer the following questions with the aid of figures where appropriate a. How does an increase in domestic government expenditure affect trade balance and real exchange rate? (2 points] b. How does an increase in foreign government expenditure affect the trade balance and...
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?
Consider an open economy with flexible prices and flexible exchange rate. If the government reduces its...
Consider an open economy with flexible prices and flexible exchange rate. If the government reduces its spending, this will have a positive impact on net exports and could have a negative impact on the output of its trade partners. True or false?
IV. Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates....
IV. Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition. a. In an IS-LM-UIP diagram, show the effect of an increase in foreign output, Y", on domestic output, Y. Explain in words. b. In an IS-LM-UIP diagram, show the effect of an increase in the foreign interest rate,i on domestic output, Y. Explain in words. Given the discussion of the effects of fiscal policy in...
Assume you are in a small open economy with flexible exchange rates. The economy experiences a permanent negative supply...
Assume you are in a small open economy with flexible exchange rates. The economy experiences a permanent negative supply shock. (a) Draw the IS − RX, the PC − MR and the ERU− AD graphs to help you explain the path back to medium run equilibrium. (b) Draw a graph of the real exchange rate over time and give a brief explanation of its path. (c) How does the medium run equilibrium vary from that in the closed economy?
Macroland is a small open economy with perfect capital mobility and a fixed-exchange-rate system. Macroland is...
Macroland is a small open economy with perfect capital mobility and a fixed-exchange-rate system. Macroland is initially in the long-run equilibrium at the natural level of output with balanced trade. With the help of an appropriate diagram, compare the impact of a tax cut in the short run (when prices are fixed) and in the long run (when prices are flexible) on: 1. Output, 2. Consumption, 3. Investment, 4. Net exports 5. Exchange rate.
The government of Pangea, a small open economy with a flexible exchange rate, has increased government...
The government of Pangea, a small open economy with a flexible exchange rate, has increased government spending by $20 billion. Economists argue that after the crowding-out effect on investment and the crowding-out effect on net exports, the increases in government spending will not affect aggregate demand. Arrange each statement in the proper sequence of events from first to last, to illustrate the reasoning behind this argument. First reduction in net exports due to the appreciation of the domestic currency increased...
Question 100In an open economy with flexible exchange rates, monetary policy affects Not yet answered through changes in the real interest rate and affectsthrough changes in the Points out of 1.0...
Question 100In an open economy with flexible exchange rates, monetary policy affects Not yet answered through changes in the real interest rate and affectsthrough changes in the Points out of 1.00 exchange rate. r Remove flag Select one: A. Consumption and investment; net exports O B. net exports; taxes and saving o c. productivity and growth; consumption O D. taxes and saving; net exports
Question 100In an open economy with flexible exchange rates, monetary policy affects Not yet answered through...
II. Consider an open economy with flexible exchange rates. Suppose output is at the natural level,...
II. Consider an open economy with flexible exchange rates. Suppose output is at the natural level, but there is a trade deficit. The goal of policy is to reduce the trade deficit and leave the level of output at its natural level. What is the appropriate fiscal and monetary policy mix?
2. Consider a small open country (Veniceland) with flexible exchange rate and perfect capital mobility. The economy is...
2. Consider a small open country (Veniceland) with flexible exchange rate and perfect capital mobility. The economy is at the short-run equilibrium, and the domestic and foreign bonds pay the same interest rate. The government aims at increasing households' consumption to stimulate an economic recovery. Which policy should the government adopt? [2p] a. b. Explain the main economic adjustments leading to the new short-run equilibrium income and interest rate. [4p] How does the policy of the government affect the balance...
14. Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the world consists of a small open economy (we call this domestic) and the rest of the world (we call this foreign). Answer the following questions with the aid of figures where appropriate a. How does an increase in domestic government expenditure affect trade balance and real exchange rate? (2 points] b. How does an increase in foreign government expenditure affect the trade balance and...
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?
IV. Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition. a. In an IS-LM-UIP diagram, show the effect of an increase in foreign output, Y", on domestic output, Y. Explain in words. b. In an IS-LM-UIP diagram, show the effect of an increase in the foreign interest rate,i on domestic output, Y. Explain in words. Given the discussion of the effects of fiscal policy in...
The government of Pangea, a small open economy with a flexible exchange rate, has increased government spending by $20 billion. Economists argue that after the crowding-out effect on investment and the crowding-out effect on net exports, the increases in government spending will not affect aggregate demand. Arrange each statement in the proper sequence of events from first to last, to illustrate the reasoning behind this argument. First reduction in net exports due to the appreciation of the domestic currency increased...
Question 100In an open economy with flexible exchange rates, monetary policy affects Not yet answered through changes in the real interest rate and affectsthrough changes in the Points out of 1.00 exchange rate. r Remove flag Select one: A. Consumption and investment; net exports O B. net exports; taxes and saving o c. productivity and growth; consumption O D. taxes and saving; net exports
Question 100In an open economy with flexible exchange rates, monetary policy affects Not yet answered through...
II. Consider an open economy with flexible exchange rates. Suppose output is at the natural level, but there is a trade deficit. The goal of policy is to reduce the trade deficit and leave the level of output at its natural level. What is the appropriate fiscal and monetary policy mix?
2. Consider a small open country (Veniceland) with flexible exchange rate and perfect capital mobility. The economy is at the short-run equilibrium, and the domestic and foreign bonds pay the same interest rate. The government aims at increasing households' consumption to stimulate an economic recovery. Which policy should the government adopt? [2p] a. b. Explain the main economic adjustments leading to the new short-run equilibrium income and interest rate. [4p] How does the policy of the government affect the balance...
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