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- 2. Under what circumstances might an increase in worldwide interest rates be beneficial for a small open economy (SOE)? Explain.11 Use the IS-LM-UIP model for an open economy with flexible exchange rates as a useful tool in discussion of domestic macroeconomic effects of high electricity prices, including petrol and diesel prices, and how this affects the purchasing power and economy of a country when electricity prices are 7-10 times normal8. In a small open economy, net exports NX depend negatively on domestic in- come Y and negatively on the real exchange rate & = = eP/P*, where e is the nom- inal exchange rate (the foreign-currency price of domestic currency), and P and P* are the domestic- and foreign-currency prices of domestically and foreign- produced goods, respectively. Assume initially that both P and P* are fixed. There is perfect mobility of capital, so balance-of-payments equilibrium requires that i i*, where i and it are the domestic and foreign interest rates. Assume the economy adopts a flexible exchange rate regime. = (a) Using the IS-LM-BP model, carefully explain whether monetary policy and/or fiscal policy can succeed in raising the economy's GDP. Now assume instead that the economy adopts a fixed exchange rate regime. (b) For each of the policies below, explain what foreign-exchange market intervention is required to support the fixed exchange rate, and whether the policy would succeed in raising…
- 9 Suggest how the multinational company (MNC) could reduce/eliminate the exchange rate risk4. Deriving net exports By definition, net exports from Japan are equal to exports from Japan minus imports into Japan. In a hypotheticall two-country world, imports into Japan are equal to exports from the United States. So the value for net exports from Japan is equal to exports from Japani minus exports from the United States, Graphically, at each exchange rate, the value for net exports is the horizontal distance from U.S. exports to Japanese exports. Use the graph input tool to answer the following questions. You will not be graded on any changes you make to this graph. (Note: To avoid dealing with decimal places, this calculator reports the price of yen in terms of dollars per 1,000 yen. That is, the price on the vertical axis is the dollar price of a 1,000-yen note instead of a single yen. As you have already seen, a price of 8 dollars per 1,000 yen is the same as 125 yen per dollar. Once you enter a value in a white field, the graph and any corresponding amounts in each grey…Sub : FinancePls answer very fast.I ll upvote. Thank You
- 13. Draw a diagram and illustrate the effects of the follow- ing on the net exports function for the United States: a. The French government imposes restrictions on French imports of U.S. goods. ate my. b. The U.S. national income rises. c. Foreign income falls. d. The dollar depreciates on the foreign exchange market. 60 00 C functiom different. how transcribed image text21
- 9. Consider savings-investment diagrams assuming that there are two countries in the world, A and B. Initially, both countries are identical, i.e., they have the same supply of savings and demand for investment. Therefore, even as open economies, they both have balanced current accounts, i.e., neither has a deficit or surplus. Now assume that in country A, the government increases the budget deficit, shifting the supply of savings to the left. If all other curves (A s investment demand, B s savings supply, B s investment demand) stay the same, what will the effect of the increase in A's budget deficit? a. Country B will have a CA surplus. b. Country A will have a KFA deficit. c. Investment in country B will increase. d. The world real interest rate will fall.pls answer question 10 only, thanks2. Determining long-term exchange rates Consider two countries, the United States and Japan, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in Japan. The following graph shows the supply and demand for the Japanese yen in the United States before the change in productivity. The vertical axis is the exchange rate of the yen in terms of the dollar, and the horizontal axis is the quantity of yen Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph Note: Select and drag one or both of the curves to the desired position. Curves will snap Into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther EXCHANGE RATE (Dollars per yeni Demand QUANTITY (Millions of yen) As a result of the change in productivity, the U.S. doilar appreciates depreciates Demand 161 Supply