Assume that an open economy starts at the natural level of output.The capital is perfectly mobile and the exchange rate is floating.a. Suppose that firms increase the mark-up. Show what happens tothe output, the price the interest rate, the real exchange rate inthe short-run in the IS- LM- BOP diagram and in the AD - AS diagram(hint: in the IS-LM market something happens because prices arechanging) (hint2: the effect on the real exchange rate is not ambiguous as variations in the levelof price dominates variations in thenominal exchange rate)

Sure, let's break this down step by step.IS-LM-BoP DiagramIncrease in Mark-Up: When firms increase…

Answered: Assume that an open economy starts at…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Graphically show the impact of the following on the real exchange rate and the trade balance (a) Biden's administration passes large spending bill (b) World governments engages in expansionary fiscal policy.
A6)
Illustrate and explain the impact on the real exchange rate and the trade balance due to: 1. An increase in the real interest 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
OPEN ECONOMY Consider a small open economy. Predict what will happen to the following variables in response to the events indicated in the first column. For savings, investments, trade balance, and domestic interest rate, indicate whether the variable rises or falls or exhibits no change. For the exchange rate, indicate whether it appreciates or depreciates. Domestic Real Nominal Trade Interest Exchange Exchange Savings Investments Balance Rate Rate Rate Government implements a program granting an investment tax credit to domestic firms Sketch a graph of the situation above
Define and derive the monetary approach to exchange rates. Why is it called a long-run model? Don't copy. I ll rate
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.
Using the model that we have developed, show what would happen with a new equilibrium domestic price level and real output if the government increases government spending that are fully financed by increase of taxes (change of government spending is equal to the increase of taxes). What will be the size of the AD curve shift? Keeping nominal exchange rate and foreign price level constant, what will happen with the real exchange rate, import and net export?
How can the Big Mac Index explain the ability of a country's exchange rate? And how does the Big Mac Index relate to The Law of One Price?
For the following event, explain for the open economy Canadian market, the short run and long run effects on aggregate demand (AD), output, price level, interest rate, exchange rate, trade balance assuming policymakers take no action. Also, explain what happens when the Central Bank maintains a fixed exchange rate. Event: in Canada, the federal government committed more than $ 6 trillion for public works, new equipment for armed forces, highway constructions, research spending, hospitals and schools PLEASE HELP ME WITH THIS QUESTION IN WORDS AND IN GRAPHS
What is the structure of the exchange rate mechanism in US and Thailand? Please explain. Please answer I will rate
The following questions relate to macroeconomic balance (internal and external balance) assume that capital is perfectly mobile and exchange rate is flexible. a. An economy is in internal balance but have a Current Account deficit Its IB schedule is steeper than the EB schedule. Explain in what situation you would be able to restore external balance without disrupting internal balance. What policies need to be taken to achieve internal balance and external balance? Complete your answer with curve b. An economy is in external balance but have an unemployment situation Its IB schedule is steeper than the EB schedule Explain in what situation you would be able to restore internal balance without disrupting external balance. What policies need to be taken to achieve internal balance and external balance? Complete your answer with curve.

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