Homework Answers
The correct answer is Option (A) Consumption and Investment ; Net Exports
Explanation -
Just as an example, when policymakers pursue expansionary policy, the money supply in the banking system increases and the real interest rates decline in the economy. As real interest rates decline, consumers are more willing to pursue leveraged consumption spending and businesses are more willing to pursue leveraged investment spending. At the same time, when interest rates decline relative to other economies, the currency weakens and this boosts exports. Therefore, the net export component is impacted.
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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...
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?
Describe the channels by which monetary policy ripples through the economy and explain how each channel...
Describe the channels by which monetary policy ripples through the economy and explain how each channel operates. Suppose the Bank of Canada raises the overnight loans rate. When the Bank of Canada raises the overnight loans rate, it makes an open market Other short-term interest rates and the exchange rate rise. The quantity of money and the supply of loanable funds decrease The long-term real interest rate rises The higher real interest rate decreases consumption expenditure and investment. The exchange...
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...
Question 2 Not yet answered Points out of 1.00 Flag question What is consumption in this...
Question 2 Not yet answered Points out of 1.00 Flag question What is consumption in this economy? In trillions of dollars GDP Government Purchases Transfer Payments Exports Imports Net foreign factor income 5.0 0.2 0.4 0.5 0.4 Select one: a. Not enough information to compute consumption b. 3.6 trillion C. 4.1 trillion d. 3.9 trillion
4. Show and describe what happens in a LARGE OPEN ECONOMY to consumption (C), real interest rates (r), domestic inv...
4. Show and describe what happens in a LARGE OPEN ECONOMY to consumption (C), real interest rates (r), domestic investment (I), domestic savings (S), net exports (NX), capital flow (CF), and the real exchange rate (E) when there is a decrease in government spending in the large open economy. Show all steps.
In February 2014, South Africa had an inflation interest rates in January and is expected to increase or maintain the interest rates through 2014
QUESTION 4 In February 2014, South Africa had an inflation interest rates in January and is expected to increase or maintain the interest rates through 2014. The South African central bank is pursuing rate of 5.9 % and an unemployment rate of 24.1%. The South African central bank raised a(n): contractionary monetary policy to contain inflation. expansionary monetary policy to contain inflation. expansionary monetary policy to fight unemployment. contractionary monetary policy to fight unemployment QUESTION 5 When the economy is sluggish, the Fed will: raise interest rates, which...
The foreign exchange rate is defined as the Question 64 Not yet answered Points out of...
The foreign exchange rate is defined as the Question 64 Not yet answered Points out of 100 Remove flag Select one: © A. volume of the world currencies traded. B. equal to the amount of the current account deficit. C. equal to the amount of the capital account deficit. D. rate or the speed with which the currencies of the worlds are traded. E.price at which one currency exchanges for another. Other things remaining the same, as U.S. imports increase...
Question 4 (10 Marks): Assume that Canada is a small open economy which uses a system of flexible exchange rates. Th...
Question 4 (10 Marks): 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.
(i) Explain the difference between the nominal and real interest rate. (ii) How does the Reserve...
(i) Explain the difference between the nominal and real interest rate. (ii) How does the Reserve Bank of Australia control the interest rate? (iii) You hear a news report that output growth and inflation are lower than expected. How do you expect that report to affect market interest rates? Explain why. (iv) The Reserve Bank faces a large recessionary gap. How would you expect it to respond? Explain step by step how its policy change is likely to affect the...
Consider the following open economy. The real exchange rate is fixed and equal to one. Consumption, investment, governm...
Consider the following open economy. The real exchange rate is fixed and equal to one. Consumption, investment, government spending and taxes are given by: C = co + ci(Y-T), I = 7, G=G, and T=1 Imports and exports are given by: Q = my and X = rY* where asterisk denotes a foreign variable. a) Solve for equilibrium income in the domestic economy, given Y*. What is the multiplier in this economy? If we were to close the economy (so...
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?
Describe the channels by which monetary policy ripples through the economy and explain how each channel operates. Suppose the Bank of Canada raises the overnight loans rate. When the Bank of Canada raises the overnight loans rate, it makes an open market Other short-term interest rates and the exchange rate rise. The quantity of money and the supply of loanable funds decrease The long-term real interest rate rises The higher real interest rate decreases consumption expenditure and investment. The exchange...
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...
Question 2 Not yet answered Points out of 1.00 Flag question What is consumption in this economy? In trillions of dollars GDP Government Purchases Transfer Payments Exports Imports Net foreign factor income 5.0 0.2 0.4 0.5 0.4 Select one: a. Not enough information to compute consumption b. 3.6 trillion C. 4.1 trillion d. 3.9 trillion
4. Show and describe what happens in a LARGE OPEN ECONOMY to consumption (C), real interest rates (r), domestic investment (I), domestic savings (S), net exports (NX), capital flow (CF), and the real exchange rate (E) when there is a decrease in government spending in the large open economy. Show all steps.
The foreign exchange rate is defined as the Question 64 Not yet answered Points out of 100 Remove flag Select one: © A. volume of the world currencies traded. B. equal to the amount of the current account deficit. C. equal to the amount of the capital account deficit. D. rate or the speed with which the currencies of the worlds are traded. E.price at which one currency exchanges for another. Other things remaining the same, as U.S. imports increase...
Question 4 (10 Marks): 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 the following open economy. The real exchange rate is fixed and equal to one. Consumption, investment, government spending and taxes are given by: C = co + ci(Y-T), I = 7, G=G, and T=1 Imports and exports are given by: Q = my and X = rY* where asterisk denotes a foreign variable. a) Solve for equilibrium income in the domestic economy, given Y*. What is the multiplier in this economy? If we were to close the economy (so...
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