Consider two open economies, A and B, characterized by the equations on the right. The parameters m, and x, are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y*, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? O A. B OB. A OC. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c₁ (Y-T) 1 = do + d₁Y IM = m₁Y X=x₁Y* c₁+d, 0.8 in both A and B m, 0.3 in A; m, 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by ☐.

Consider two open economies, A and B, characterized by the equations on the right. The parameters m, and x, are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign income, Y, as fixed. Also assume that taxes are fixed and that government purchases are exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. Given this information, which of the two economies do you think is larger? O A. B OB. A OC. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) C = c₁ + c₁ (Y-T) 1 = do + d₁Y IM = m₁Y X=x₁Y c₁+d, 0.8 in both A and B m, 0.3 in A; m, 0.4 in B Output in A will by Output in B will by Net exports in A will by Net exports in B will by ☐.

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

Consider the following small open economy model with production. At dates 1 and 2, the home country receives exogenous fixed endowments y1 and y2 respectively. The home country has access to the international capital market at a fixed interest rate r* at which it can save or borrow. Let the net saving of the home country be s1 and its consumption stream in two periods be given by c1 and c2 respectively.the following maximization problem: Max ln c1 + ln c2 s.t. C1 + S1 = Y1 C2 = C1(1+r*) + Y2 Derive optimal consumption and current account functions and carefully interpret it in terms of a two-period Fisherian graph. Refer to (a). Suppose the home country also has an access to an investment technology which means that if it invests k units at date 1, it produces y2 = Aka units of output in the next period where A >0 and 0 < a< 1 . Modify budget constraints for (a)Derive the optimal investment and saving rules for this economy assuming the same logarithmic utility…
If the income in Mexico rises, all else the same, what will happen to the US exports to Mexico? Select the correct answer below: exports will increase exports will decrease exports will remain unchanged it cannot be determined
Suppose a country experiences an inflow of labor from the rest of the world but the world relative price remains the same. In that country, output of the capital - intensive good will and output of the labor - intensive good will.
Question 10. Applying the Mundell-Fleming model analyse the impact on domestic income, interest rate, CA and KA of the following events: (a) an increase of foreign interest rate; (b) a fall of foreign demand on domestic goods. Provide an analysis for two different countries: country A with fixed exchange rate and perfect capital mobility country B with flexible exchange rate and imperfect capital mobility please do not make a long description but provide graphs and short analysis
Consider Figure 14.7, which shows the relationship between cultural modernization and income per capita. In which case will the “modernization multiplier” be larger: when the M(Y) curve is flat, or when it is steep, although less steep than the Y(M)curve? What is the economic interpretation of the slope of the M(Y) curve?
KEYNESIAN OPEN-ECONOMY MODEL IN DYNAMICS This section contains questions about a Keynesian open-economy model: • Recall the static IS equation Y = C +I+ G+ X – M. In this section, we assume that the consumption, the investment and the government expenditure are parameters. The trade balance at year t (X – M) is a linear function of the exchange rate Q; and the income Y; such that: X – Mt = aQt – BY; – YYt-1 where a, B and Y are positive parameters. Derive the difference equation that describes the dynamic behavior of the income Y. | What is correct about the dynamic behavior of the model? Select one or more: Select one or more: The model implies that an increase in the income this year will immediately worsen the net export, keeping other things constant. The model implies that an increase in the real exchange rate will be followed by a series of income rises until a new equilibrium is reached. O It makes sense to assume that 2 < 1. 1+3 The model implies that the immediate multiplier…
This is the general instructions given. Use graphical analysis and detailed economic reasoning to interpret empirical evidence and/or to show your statements following the methods and contents of the lectures about the Factor specific model. Complete the analysis with appropriate assumptions if needed and proofs of theoretical propositions. Graphical analysis is requires to support the answer. In the (Standard) Specific Factors Model of a small open economy that initially exports good X, analyse the effects of a fall in the price of good Y, holding the price of good X constant on outputs of the goods, X and Y, the real wage of labor, the real rental price of capital in the X industry, and the quantity of X exported.
Consider the following small open economy model with production. At dates 1 and 2, the home country receives exogenous fixed endowments y1 and y2 respectively. The home country has access to the international capital market at a fixed interest rate r* at which it can save or borrow. Let the net saving of the home country be s1 and its consumption stream in two periods be given by c1 and c2 respectively.the following maximization problem: Max ln c1 + ln c2 s.t. C1 + S1 = Y1 C2 = C1(1+r*) + Y2 (a)Derive optimal consumption and current account functions and carefully interpret it in terms of a two-period Fisherian graph. Refer to (a). Suppose the home country also has an access to an investment technology which means that if it invests k units at date 1, it produces y2 = Aka units of output in the next period where A >0 and 0 < a< 1 . Modify budget constraints for (b)Derive the optimal investment and saving rules for this economy assuming the same logarithmic utility…
Assume that the interest rate is given and equal to i =i0 and also that the real exchange rate is constant. We assume aggregate spending by domestics residents is A = A + cY - bi and net exports, NX are given by Q = Q + mY, where Q is autonomous import spending. Exports are given and equal to X = X. A) What is the total demand for domestic goods. B)What is the equilibrium level of income? Faiz oranının verildiğini ve i = i0'a eşit olduğunu ve ayrıca reel döviz kurunun sabit olduğunu varsayalım. Yerli sakinlerin toplam harcamalarının A = A + cY olduğunu varsayıyoruz - iki ve net ihracat, NX, Q = Q + mY ile verilir, burada Q otonom ithalat harcamasıdır. İhracat verilir ve X = X'e eşittir.A) Yerli malı için toplam talep nedir?B) Denge gelir düzeyi nedir?
What is the main reason for trade in the Ricardian model? What is, in contrast, the main reason for trade in the Heckscher-Ohlin model?
For this question, treat the countries listed in each row as the home country, and treat the United States as the foreign country. Suppose the cost of the market basket in the United States is PUS = $190. Check to see whether PPP holds for each of the countries listed and determine whether we should expect a real appreciate or real depreciation for each country (relative to the United States) in the long run. You can fill out your answers in the table directly but please show how you worked out the problem for Brazil using the space below the table. Round your answers to 2 decimal places if necessary. Country (currency measured in FX units) Per $ (EFX/$) Price of Market Basket (in FX) Price of U.S. Basket in FX (PUSx EFX/$) Real Exchange Rate qcountry/US Does PPP Hold? (yes or no) Is FX Currency Overvalued or Undervalued? Is FX Currency Expected to Have Real Appreciation or Depreciation? Brazil (real) 4.07 520 India…
Assuming there is no trade, if the Marginal Propensity to Save is 0.10 and the government increases spending by $4 billion, by how much will output rise?