4. Two small open economies, Fixed and Flex, can be described by the Mundell-Fleming model. The countries are otherwise identical except that Fixed maintains a fixed exchange rate, while Flex maintains a flexible exchange-rate regime. The governments of both countries increase spending by the same amount. Compare what happens in the two countries to: a. the exchange rate b. equilibrium output c. net exports.

4. Two small open economies, Fixed and Flex, can be described by the Mundell-Fleming model. The countries are otherwise identical except that Fixed maintains a fixed exchange rate, while Flex maintains a flexible exchange-rate regime. The governments of both countries increase spending by the same amount. Compare what happens in the two countries to: a. the exchange rate b. equilibrium output c. net exports.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please show the solutions to all the question from 1-5. I need to know how to solve all of them
Type out the correct answer and give proper explanation of each n every option step by step within 50 minutes . Will give you multiple upvotes only for the correct answer . Thank you . Which of the following situations describe a fixed exchange rate regime? A. the value of the domestic currency falls when the domestic interest rate increases B. falling demand for the domestic currency prompts the central bank to buy the currency C. an increase in exports causes increase in the demand for the domestic currency D. government intervention in the oil market increases the demand for foreign currency
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A6)
Big Mac costs $5.90 in the US and it costs 560 yen in Japan. The market exchange rate is 100 yen per dollar. What is the Big Mac PPP exchange rate?
Under flexible exchange rate regime, the spot exchange rate a. Is maintained by the monetary authority's intervention to buy domestic currency b. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right. c. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right. d. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left. e. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left. f. None of the above
Within the context of the Mundell-Fleming Model under a fixed exchange rate system, describe how the economy would respond to expansionary fiscal policy a.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by engaging in expansionary monetary policy like increasing government sending in order to increase national income b.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by engaging expansionary monetary policy like open market operation to increase national income. c.There will be no intervention since the exchange rate is already fixed and cannot be changed. d.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by selling domestic currency in the foreign exchange market.
Monetary policy is very effective under a fixed exchange rate policy. 1. Answer: 2. A revaluation switches expenditures from foreign to domestic commodities and can be used to correct a deficit in the nation's balance-of-payments Answer: 3. The foreign exchange market for any currency is composed of all the locations where the currency is bought and sold for other currencies Answer: 4. Under flexible exchange rates, a trade deficit is automatically corrected by a deprecation of the deficit nation's currency. Answer: 5. Financial reserve assets are excluded from the capital account because changes in reserves reflect government policy rather than market forces. Answer:
In quoting exchange rates: Answer a. One should always quote these as units of foreign currency over a unit of domestic currency b. One should always quote the rate as the units of domestic currency over a unit of foreign currency c. Usually one should quote the rate in such a way that the value is greater than one d. Each country's central bank determines how the rate is to be quoted
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