Answer the following questions briefly.a) Explain why the BP schedule implies a positive relationship between r and Y.b) In a graph with r on the vertical axis and Y on the horizontal axis, explainwhat does a point above the BP schedule imply and what is the implication ofa point below the balance of payment curve?c) Explain what is the effect of appreciation of the exchange rate on the BPschedule. How does appreciation of currency affect IS and LM curve?d) Explain why the degree of capital mobility is a crucial determinant of theinitial effects on a nation's balance of payment and its equilibrium income levelfollowing a reduction in government spending with a fixed exchange rate?please show separate graphs for every step and effect.

c) The impact of appreciation in exchange rates on the BP Schedule, IS, and LM CurvesWhen the…

Answered: Answer the following questions briefly.…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 4P

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Similar questions

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.
Please solve 3part
Define nominal exchange rate and real exchange rate. What are the two main types of exchange-rate systems? What explains the behavior of net exports represented by the J curve? How does real exchange rate affect net exports? Explain and give one example.
20. Suppose 1 CAD = 30 MXN was the actual exchange rate. Predict how people would respond to this exchange rate given that the exchange rates between USD and CAD and MXN are as listed above. I
15. Why do exchange rates frequently violate the theory of PPP? To what extent does this diminish the theory's usefulness for understanding exchange rate determination?
QUESTION 10Suppose there are two countries that are identical in every way with the following exception. Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose government spending in both countries rises by the same amount. Given this information, we know that: the change in output in A will be greater than in B. the change in output in B will be greater than in A. the change in output will be the same in both countries. the relative output effects are ambiguous.
b. Consider a fixed exchange rate regime. How does higher government expenditure affect output and interest rate in equilibrium? Discuss with the help of the diagram above (e.g., show what curves will shift, label curves and axes correctly).
According to Big Mac Index 2012 provided by the Economists, A Big Mac costs $4.33 in the U.S. and 15.65 RMB in China. a. What should be the exchange rate S($/RMB) based on PPP? b. If the inflation rate in China will be 3% while the inflation rate in the U.S. will be 2% over the next year, what should be the future exchange rate S360($/RMB) based on PPP? c. If S($7RMB) indeed increases by 2%, what does it imply to the competitiveness of the U.S. exporters? d. The market exchange rate of S(RMB/$) is 6.29RMB/$ on October 3rd. Compared to the PPP-implied exchange rate, is RMB over-value or under value and by how much?
2
1 Suppose that due to a fall in the world interest rate, the equilibrium consumption of trad- ables, CT (r∗, QT1 , QT2 ), increases by 10 percent. Assume that prior to the fall in the world interest rate the economy was operating at full employment. Show that the equilibrium real wage also increases by 10 percent. Show that this result is independent of the exchange rate arrangement. To answer this question, you can use a graphical or a mathematical approach.
Assume that there is a free-floating exchange rate. Interest rates rise in the UK,relative to those abroad. Discuss the effect that you would expect this to have onexchange rates. You should consider the effect on currency supply and demand, andillustrate your answer with a diagram. You should also consider how this relates to theconcept of uncovered interest rate parity, and discuss this with the help of an equation.
Lecture: What Determines Fxchange Rstes? Question: Regarding exchange rate overshooting, what are the two side effects that intervene and affect the path of the exchange rate after the increase in the domestic money auppty? a. Sbick product peikes and tectining domentic interest rate: b. Deciling foreign interent ratea and sticay product prices. c. Sticky domestic interest rates and increming produat prices: d. Increasing dometic interet rates and sticky foreign inferes rates, e. Sticky faregn interat rates and dedingrg product prices:

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