Consider the model of two countries, home and foreign. Suppose that the real money demand in home country is given by: L(i, Y) = Ye-xi, where > 0 and X > 0. Discuss the values of o. (2) Discuss the values of X.

Consider the model of two countries, home and foreign. Suppose that the real money demand in home country is given by: L(i, Y) = Ye-xi, where > 0 and X > 0. Discuss the values of o. (2) Discuss the values of X.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Exercise 3 For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. Note: Assume the government responds by using monetary policy to stabilize output, unlike Exercise 2, and assume the exchange rate is floating. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, and TB. For your graphical illustration, use A to denote initial equilibrium, B for the equilibrium in Exercise 2, and C for the equilibrium in Exercise 3. (a) Foreign output decreases. (b) Investors expect a depreciation of the Home currency. (c) The money supply increases.
Consider the following equations for a small open economy for both the goods and money markets.Goods Market: C = 3000 + 0.8Yd; T = 1000 + 0.3Y; G = 6000; TR = 500; I = 4000 + 0.24Y – 100r; M = 3000 + 0.2Y; X = 2000.Money market: LP = 1000 + 0.15Y; LT = 2000 + 0.25Y – 15r; Ls = 1000 – 35r; MS = 40,000; P= 4a. Derive both the IS and LM equations for the economy and compute the Equilibrium level of Income and Interest Rate.
You work for the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. Your supervisor gives you the following U.S. International Transactions Accounts for the Year 20XX (figures are in billions of dollars) and wants it reported in a coherent fashion in accordance with accepted conventions: Investment income payments (27.3); Export of goods 80.6; Balance of services 5.1; Capital outflow (44.5); Imports of goods (110.9); Change in Official Reserves 2; Investment income receipts 24.7; Capital inflow 73.6; Net unilateral transfers (3.3). (a) He wants you to compute the balances of trade, current account, capital account and statistical discrepancy. (b) He also wants you to find out (based on your calculation) if the U.S. is a net debtor or a net creditor and why
Problem 3. Spillovers and International Transmission of Shocks Panama (Home) is a small open economy that pegs its exchange rate to the US (Foreign) dollar. Assume that shocks/policies of Panama have no impact on the US economy as it is a small country. We assıme that investment in Panama only depends on the real interest rate so that when rates rise investment falls and vice versa. Formally, we can write I = I(R), I'(R) < 0. We will say that a shock is transmitted positively from the US to Panama, whenever outputs of the US and Panama move in the same direction in response to that particular shock. A shock is transmitted negatively if the outputs of the US and Panama move in opposite direction. Furthermore, assume that all shocks analyzed below are temporary. (a) Using the AA-DD framework, show the effect a US monetary expansion (R* 4) on output, inter- est rates, money supply, and the exchange rate in Panama. Do US monetary shocks transmit positively or negatively to Panama? (b) Do…
answer 5.3 & 5.4
Consider two ccountries, the United States and Japan. In the U.S., there are two firms, Pikes peak Steel (PPS) and General Motors (GM), both owned by U.S. citizens. In Japan, there is one firm, Toyota, owned by Japanese citizens. All of the employees of PPS and GM are U.S. citizens and all of the employees of Toyota are Japanese citizens. In a given year, PPS produces $6000 worth of steel and pays wages of $1500. It sells $2000 worth of steel to GM and $4000 worth of steel to Toyota. GM buys $2000 with pf steel from PPS and payes wages of $4000. GM produces $8000 worth of cars during the year; it sells $5500 worth of cars to consumers in thr U.S., $1500 worth of cars to the U.S. government, and $1000 worth of cars to consumers in Japan. Toyota buys $4000 worth of steel from PPS and pays wages of $2500. Toyota produces $9500 worth of cars during the year; it sells $5000 worth of cars to consumers in the U.S., $1000 worth of cars to the Japanese government, and $3500 worth of cars to…
Using the Mundell - Fleming short-run model of a small and open economy, with well-labeled diagrams, predict what would happen to i) income, ii) interest rate, iii) consumption, iv) investment, v) exchange rate, and vi) trade balance of the US economy, in response to each of the following shocks under flexible exchange rate system i) banks decide to loan out less funds ii) more foreigners visit US
QUESTION 4 Consider the following two figures. Japanese Yen per 1 uS Dollar Graph Danish Krone per 1 Euro Graph 12 Mar 2018 16:00 UTC - 11 Apr 2018 16:48 UTC 12 Mar 2018 16:00 UTC - 11 Apr 2018 16:10 UTC 107.07591 7.4648491 106, 39703 7.4552022| 1d5.1Ma16 105.03928 7.4359083. 104.36040 7.4262613 Apr9 Mar 12 Mar 12 Mar 19 Mar 26 | Apr 2 Apr 2 | Apr 9 Mar 19 Mar 26 Which of the following statements is correct? A. the left figure describes a fixed exchange rate; the right figure describes a fixed exchange rate O B. the left figure describes a flexible exchange rate; the right figure describes a flexible exchange rate C. the left figure describes a fixed exchange rate; the right figure describes a flexible exchange rate D. the left figure describes a flexible exchange rate; the right figure describes a fixed exchange rate
Suppose that the central bank decreases the tax rate. What happens to the output (Y), real interest rate (r), exchange rate (e), investment (I), and net export (NX) under the following model environment? (Note: (1) The exchange rate e is the amount of foreign currency per unit of domestic currency. (2) Explain your answers using the graph/figure.) Short-run closed economy. Short-run small-open economy (Floating exchange rate). Short-run small-open economy (Fixed exchange rate). Short-run large-open economy (Floating exchange rate). Long-run closed economy.
Kindly answer this question as soon as you can For each of the following, specify whether the foreign direct investment is horizontal or vertical; in addition, describe whether that investment represents an FDI inflow or outflow from the countries that are mentioned. a. McDonald’s (a U.S. multinational) opens up and operates new restaurants in Europe. b. Total (a French oil multinational) buys ownership and exploration rights to oil fields in Cameroon. c. Volkswagen (a German multinational auto producer) opens some new dealerships in the United States. (Note that, at this time, Volkswagen does not produce any cars in the United States.) d. Nestlé (a Swiss multinational producer of foods and drinks) builds a new production factory in Bulgaria to produce Kit Kat chocolate bars. (Kit Kat bars are produced by Nestlé in 17 countries around the world.)
Consider the aggregate demand function, D(EPF/PH, Y-T, I, G) = C(Y-T) + I + G + CA(EPF/PH, Y-T). When Foreign price fell, how would the consumption, the current account and the aggregate demand change: Increase, Decrease or No change? Consumption: Current account: Aggregate demand: