4. A further look at Table 19.1 Table 19.1 has four entries. Using Figure 19.5 as a guide, draw the situations illustrated in each of the four entries in Table 19.1. Be sure you understand why the direction of change in government spending and the real exchange rate is labelled as ambiguous in each entry. Table 19.1 Exchange rate and fiscal policy combinations Table 19.1 Exchange rate and fiscal policy combinations Initial Conditions Low output High output Trade Surplus 8? G↑ E↑ G? Trade Deficit el G? B? G↓ Net exports, NX Demand, Z ZZ' AG <0 ZZ ANX > 0 Demand for domestic goods 45° Y Y' Output, Y ANX > 0 B C NX' NX Output, Y

4. A further look at Table 19.1 Table 19.1 has four entries. Using Figure 19.5 as a guide, draw the situations illustrated in each of the four entries in Table 19.1. Be sure you understand why the direction of change in government spending and the real exchange rate is labelled as ambiguous in each entry. Table 19.1 Exchange rate and fiscal policy combinations Table 19.1 Exchange rate and fiscal policy combinations Initial Conditions Low output High output Trade Surplus 8? G↑ E↑ G? Trade Deficit el G? B? G↓ Net exports, NX Demand, Z ZZ' AG <0 ZZ ANX > 0 Demand for domestic goods 45° Y Y' Output, Y ANX > 0 B C NX' NX Output, Y

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

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If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
Use the following diagram, depicting the combination of exchange rate and output for which both the output and asset markets are in equilibrium. Exchange rate, E DD AA Y¹ Output, Y Under a flexible exchange rate regime, expansionary fiscal policy will: Select one: O shift the DD curve rightwards and output increases by a small amount shift both the DD and AA curve rightwards and output increases by a large amount O shift the AA curve rightwards and ouput increase by a small amount O shift the AA curve rightwards then leftwards, leaving output unchanged O shift the DD curve rightwards then leftwards, leaving output unchanged
Analyze the adjustment of the dollar/euro exchange rate following a permanent increase inthe U.S. money supply. In your analysis show both the short-run and the long-run effects ofthis disturbance. Suppose that the economy starts with all variables at their long-run levelsand that output remains constant as the economy adjusts to the money supply change. Alsoassume that the decrease in the money supply affects exchange rate expectations today. Please illiustrate any graph if needed. Thank you
You observe the following exchange rates Spot GBP/EUR exchange rate 1.120 € per £ 3 month GBP/EUR forward rate 1.115 Which of the following statements is likely to be true? Select one: O a. Neither of the other options O b. UK interest rates are lower than Eurozone interest rates O c. Speculators are expecting GBP to depreciate against EUR for the next year. d. UK interest rates arhigher than Eurozone interest rates. O e. Speculators are expecting GBP to appreciate against EUR for the next year.
Please help me with question 3 and 4. Thank you 4) Analyze the adjustment of the dollar/euro exchange rate following a permanent increase inthe U.S. money supply. In your analysis show both the short-run and the long-run effects ofthis disturbance. Suppose that the economy starts with all variables at their long-run levelsand that output remains constant as the economy adjusts to the money supply change. Alsoassume that the decrease in the money supply affects exchange rate expectations today.
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What is happening to the U.S. real exchange rate ineach of the following situations? Explain.a. The U.S. nominal exchange rate is unchanged,but prices rise faster in the United States thanabroad.b. The U.S. nominal exchange rate is unchanged, butprices rise faster abroad than in the United States.c. The U.S. nominal exchange rate declines, andprices are unchanged in the United States andabroad.d. The U.S. nominal exchange rate declines, andprices rise faster abroad than in the United States.
6. In the exchange rate model in Example 7.2, supposethe company continues to manufacture its product inthe United States, but now it sells its product in theUnited States, the United Kingdom, and possibly othercountries. The company can independently set its pricein each country where it sells. For example, the pricecould be $150 in the United States and £110 in theUnited Kingdom. You can assume that the demandfunction in each country is of the constant elasticityform, each with its own parameters. The question iswhether the company can use Solver independently ineach country to find the optimal price in this country.(You should be able to answer this question withoutactually running any Solver model(s), but you mightwant to experiment, just to verify your reasoning.)
The following Figure shows the effect on the Dollar/Euro exchange rate and the Dollar interest rate after an increase in the U.S. money supply. Please explain why the dollar depreciates against the euro in this case.
2. Problems and Applications Q2 Suppose that Congress is considering an investment tax credit, which subsidizes domestic investment. Complete the following table by indicating how this policy affects national saving, domestic investment, net cap/tal outflow, the real interest rate, the exchange rate, and the trade balance Increase Decrease National saving Domestic investment Net capital outflow Real interest rate Exchange rate Trade balance True ar False: As a result of the investment tax credit, exports to other countries increase. O True O False
Please help me with this questions. Thank you 1. Using the IS–LM–FX model, illustrate how an increase in the home country’sgovernment spending affects the home country. Compare the outcome when the homecountry has a fixed exchange rate with the outcome when the home currency floats. Foreach case, state the effect of the increase in the home country’s government spending(increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I,TB. 2. During the 1980s, the United States experienced “twin deficits” in the currentaccount and government budget. Since 1998 the U.S. current account deficit has grownsteadily along with rising government budget deficits. Do government budget deficitslead to current account deficits? Identify other possible sources of the current accountdeficits. Do current account deficits necessarily indicate problems in the economy? 3. Suppose the Japanese government is considering two policies. One policy wouldinvolve increasing government…
Figure 13-2 Real Interest Rate World interest rate, fo Real Exchange Rate E₁ 토 Supply of Loara ble Funds Demand for Loa rable Funds Quantity of Loanable Funds Supply of Canadian Dollars (S-1) Do Quantity of Dollars Refer to the Figure 13-2. If the economy were initially in equilibrium at r0 and EO and the government removed import quotas, what would happen to the exchange rate? a. It would appreciate to El. b. It would appreciate to E2. C. It would depreciate to El. d. It would depreciate to E2.