a. Use the accompanying two diagrams to illustrate the effects of an increase in foreign output on domestic income, interest rate, and exchange rate. Assume that the domestic country is under a floating exchange rate regimen. IS-LM Diagram FX Market LM DR IS FR Output, income, Y Exchange rate, E b. The increase in foreign output causes domestic output to Policymakers can offset this shock by using monetary policy to stabilize output. Interest rate, i Domestic and foreign returns

a. Use the accompanying two diagrams to illustrate the effects of an increase in foreign output on domestic income, interest rate, and exchange rate. Assume that the domestic country is under a floating exchange rate regimen. IS-LM Diagram FX Market LM DR IS FR Output, income, Y Exchange rate, E b. The increase in foreign output causes domestic output to Policymakers can offset this shock by using monetary policy to stabilize output. Interest rate, i Domestic and foreign returns

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

a. Describe what is happening to the country’s capital account of the balance of payments prior to government changing its tack on supporting the value of the currency? Which items in the capital account are likely to change and how will they change? b. What is likely to happen to the country’s real exchange rate initially and after the government changes its policy stance with respect to supporting the currency? Please justify your answer. c. What happens to the current account balance right after the oil price shock and after the government stops supporting the currency? What items of the current account are likely to change and why? d. How is the market for non-tradables in the domestic economy affected in these two stages?
Suppose the foreign central bank increases in the foreign quantity of money, and the change is expected to be permanent. a. Describe the effect of on the nominal exchange rate in the short run. b. Describe the effect of on the nominal exchange rate in the long run. c. Graph the the short-run and long-run effects in the foreign exchange market. d. Draw an impulse respo se g aph for the nominal exchange rate that reflects the short-run and long-run effects. For your graphs, draw them on a single sheet of paper and either scan or photograph it or add it as an attachment to this question. If you choose to photograph it, make sure your your graphs are clearly visible. If I can't read it, I can't grade it.
In the model of the demand and supply of euro assets use a graph to explain how a fall in productivity in Europe accompanied by a decline in European exports because of higher US tariffs affects the equilibrium exchange rate for Euro. b. Assume the price of a Big Mac is $5 in USA and 3 Euros in France. Calculate the implied exchange rate between Euro and USD (as Euro/USD). If the actual exchange rate is 0.88 Euros/USD is the Euro undervalued or overvalued? By how much? Explain.
E2 a, Show the impact of uncertainty in the United Kingdom’s financial system on the market for dollars. What is the effect on the dollar exchange rate? b. How, in this case, could the Federal Reserve maintain a fixed exchange rate? Refer to the central bank’s role in setting interest rates in your answer.
Which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market? a. A decrease in domestic interest rates O b. An increase in foreign interest rates c. Stable domestic prices while the nation's trading partners are experiencing 10 percent inflation O d. Domestic inflation of 10 percent while the nation's trading partners are experiencing stable prices
What are the effects on business investment and on the currency of a restrictive monetary policy under a flexible exchange rate regime? A. Fall in business investment and depreciation of the currency. B. Rising business investment and currency appreciation. C. Decline in business investment and appreciation of the currency. D. Rising business investment and depreciation of the currency.
Consider our simple Supply and Demand model of exchange rate determination. Think of the U.S. as the domestic country and Great Britain (GB) as the foreign country. Let "e" stand for the domestic price of one unit of the foreign currency. £ If eexP (i.e., the expected exchange rate) decreased, ceteris paribus, then we would expect an increase in the supply of £ and an increase in e. O an increase in the demand for £ and a decrease in e. O a decrease in the demand for £ and an increase in e. O an increase in the demand for £ and an increase in e. O a decrease in the demand for £ and a decrease in e.
Suppose that real interest rates increase acrossEurope. Explain how this development affectsU.S. net capital outflow. Then explain how it affectsU.S. net exports by using a formula from the chapterand by drawing a diagram. What happens to theU.S. real interest rate and real exchange rate?
The graph shows the supply curve of Canadian dollars. Draw a new supply curve that shows the effect of a rise in the expected future exchange rate. Label it. A change in the expected future exchange rate changes the supply of Canadian dollars________, and a change in Canadian demand for imports changes the supply of Canadian dollars O A. today; today B. in the future; today C. today; in the future D. in the future; in the future 120 MacBook Pro 110 100- 90- 80- 70- Exchange rate (Canadian cents per Canadian dollar) Click the graph, choose a tool in the palette and follow the instructions to create your graph. So 70 80 90 100 10 20 30 40 50 60 Quantity (billions of Canadian dollars per day) >>> Draw only the objects specified in the question.
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:
Consider the model that relates the net export and the real exchange rate. Discuss the impact that imposing an import quota has on the trade position and real exchange rate of an economy. Make sure that you use both words and figures to explain your logic.
2. Chapter 18: Using the AA-DD diagram, briefly explain: a. why monetary policy cannot be used to influence output and employment under fixed exchange rate. b. the effects of expansionary fiscal policy under fixed exchange rate.