Displayed above is the (spot) foreign exchange market for the pound sterling and the GIG, the national currency of the country High Tech. At the initial equilibrium point X, 1 Pound=5 Gigs. Please answer the following questions: GIGS £ S₁ S S₂- Se= DGIGS Se= DGIGS DE = SGIGS DE = SGIGS Billions of Pounds 1. Why does the supply curve for pounds slope upward? 2. Starting from an initial equilibrium of point X, consider a new, 5 billion pounds of capital inflow to High Tech. Under what situation would the new equilibrium be at point Y versus point Z? 3. Compare the (numerical) size of the monetary base or high-powered Money (Mo) at points X and Z. 4. If we knew that the money multiplier equals 2 and that the central bank of Freedonia had fully sterilized the capital inflow, could we estimate by how much real GDP would increase? 5. If the central bank decided instead not to sterilize, would the nominal or real gig exchange rate appreciate?
Displayed above is the (spot) foreign exchange market for the pound sterling and the GIG, the national currency of the country High Tech. At the initial equilibrium point X, 1 Pound=5 Gigs. Please answer the following questions: GIGS £ S₁ S S₂- Se= DGIGS Se= DGIGS DE = SGIGS DE = SGIGS Billions of Pounds 1. Why does the supply curve for pounds slope upward? 2. Starting from an initial equilibrium of point X, consider a new, 5 billion pounds of capital inflow to High Tech. Under what situation would the new equilibrium be at point Y versus point Z? 3. Compare the (numerical) size of the monetary base or high-powered Money (Mo) at points X and Z. 4. If we knew that the money multiplier equals 2 and that the central bank of Freedonia had fully sterilized the capital inflow, could we estimate by how much real GDP would increase? 5. If the central bank decided instead not to sterilize, would the nominal or real gig exchange rate appreciate?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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