Question 4 (10 Marks): Assume that Canada is a small open economy which uses a system of flexible exchange rates. Th...
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...
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
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
Economics 303(02) Assignment 2 continued Page 2 of 2 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.
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?
Assumed that country Alpha is a small open economy in which has practiced a flexible exchange rate system. The economy has experienced a permanent positive aggregate demand shock due to an increase in consumer spending and private investment. Based on this situation: a. Draw the PC-MR, the IS-RX, and the AD-ERU diagram to help you explain the path back to medium-run equilibrium (MRE). b. Draw a graph of the real exchange rate over time and give a brief explanation of...
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.
Question 5: [15 marks A. In an open economy that is on a fixed exchange rate, show the short run effects on output and interest rate of a decrease in consumer confidence. To answer this question, draw the following four diagrams: 3 1. The goods market, 2. The money market, 3. The IS-LM curves, and 4. The interest parity condition. Clearly label the initial and new equilibrium points in each diagram. Provide brief explanations for the changes.
Question 31 2 pts In a small open-economy, assume short-run equilibrium levels of output are below the natural rate of output. Going from the short-run to the long-rurn equilibrium, output will land prices will decrease; decrease decrease; increase increase; decrease increase: increase Question 32 2 pts Based on the below graph, if the economy starts from a short-term equilibrium at Point A, then the long-run equilibrium will be at-_ with a __ price level. Exhibit: Short Run to Long Run...
Consider a small open economy with floating exchange rates. The LM curve of this economy is given as ??=20,000???200+(????), and the IS curve is given as ??=500?20,000??+????, where ????=600?300??. Suppose that ??=1,??=100, and the world interest rate (???) is 0.025. 1) Find out the equilibrium values of output (Y), exchange rate (e), and net export (NX) of this economy. ANSWERS = Y = 400, NX = 400, e = 2/3. 2) Suppose the central bank increases the money supply to...