Consider a small open economy with perfect capital mobility and a flexible exchange rate.Suppose that net capital outflow (NCO) is negative at the world interest rate. Use a two-paneldiagram to explain the followinga) What is the is the effect of an increase in world interest rate on (i) national saving, (ii)domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports?b) What is the is the effect of an increase in the government budget surplus on (i) nationalsaving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) netexports?c) What is the is the effect of an increase in the government budget deficit on (i) nationalsaving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) netexports?d) What is the is the effect of imposing an import quota on (į) national saving, (ii) domesticinvestment, (iii) NCO, (iv) the real exchange rate, and (v) net exports?

Diagram Explanation: The two-panel diagram typically has two graphs:1. Loanable Funds Market (Market…

Answered: Consider a small open economy with…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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When there are two large open economies in the world, if capital goods become relatively cheaper compared to consumption goods in the foreign country, the world real interest rate will and the home country's current account will fall; rise fall; fall rise; rise rise; fall
Using the data given in Table 1, compute the net exports. Briefly discuss your result and indicate whether there is a trade surplus or a trade deficit in the current account.
Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. In the home country the following relationships hold: { refer to image } b) Suppose that in the home country the desired investment increases by 100, that is, I^d = 400−100r^w. What is the world equilibrium interest rate? What are the equilibrium values of consumption, national saving, investment, and the current account balance in each country?
In an open economy,a change in domestic net foreign asset depends on how much is saved, and on investment,which reduces the domestic net foreign asset. True or False.
Assume that a small open economy with a fixed exchange rate is given by: LM curve is given by: Y = 700 r – 250 + 2(M/P) IS curve is given by: Y = 400 + 3G – 2T + 3NX – 300 r Function for the net exports is: NX = 550 – 100 e (where e is the exchange rate) Price level is fixed at 1 World interest rate is r* = 2 Exchange rate is initially = 3 If M = 200, G = 350, and T = 200, solve for: a. The equilibrium short-run value of Y = b. The equilibrium short-run value of NX =
Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. Both countries have a zero current account balance initially. When answering the following questions, clearly label the lines and show the changes in the graph provided below. Give an intuitive explanation for the effects in each case. b-What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if home expected future marginal productivity of capital increases? c- What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if foreign country experiences a temporary adverse supply shock?
We have the following data for a hypothetical open economy: GNP = $10,000 Consumption (C) = $8,000 Investment (I) = $1,200 Government Purchases (G) = $1,600 What is the value of the current account balance? $. (Enter your answer as an integer. Include a minus sign if necessary).
Consider a small open economy that takes the world real interest rate as given. Suppose that initially the world real interest rate is less than the country’s autarky real interest rate. Now suppose there is a change in tax policy that leads to an increase in domestic investment demand. Which of the following is TRUE? a. The economy may flip from importing capital to exporting capital b. There is an increase in the quantity of domestic saving c. There is an increase in the real interest rate paid by domestic investors d. None of the other options
Explain why a developing country with a fixed exchange rate Explain why a developing country with a fixed exchange rate and foreign exchange controls in place (perfectly immobile capital) may find itself dependent on growth in exports, foreign investment, or foreign aid to attain economic growth. Explain why a developing country with a fixed exchange rate
Which of the following statements is true? A)The open-economy IS curve is derived in the same way that the closed-economy IS curve is derived. B)The closed-economy IS curve is downward sloping, but the open-economy IS curve is upward sloping. C)Some factors that shift the IS curve in the closed economy in one direction will shift the IS curve in the open economy in the opposite direction. D)Factors that raise a country's current net exports, given domestic output and the domestic real interest rate, shift the open-economy IS curve up.
I am a bit confused on how to identify whether the problems are decreasing/increasing in Net Exports and Net Capital Flow
Consider and economy described by the following equations: Y=C+I+G+NX Y = 10000 G= 2000 T= 1500 C = 300 +.7 (Y-T) I= 500 – 25r NX = 1000 - 1000€ r=r* = 6 a) In this economy, solve for national savings, investment, the trade balance, and the equilibrium exchange rate. b) Suppose now that G falls to 1,500. Solve for national savings, investment, the trade balance, and the equilibrium exchange rate. c) Now suppose the world interest rate falls from 6 percent to 5 percent. G is again 2000. Solve for national savings, investment, the trade balance, and the equilibrium exchange rate.

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