Explain why in case of a fixed exchange rate regime temporary and permanent fiscal policy changes do not have different effects on output and the exchange rate in the short run as they do in case of a floating exchange rate regime.

Explain why in case of a fixed exchange rate regime temporary and permanent fiscal policy changes do not have different effects on output and the exchange rate in the short run as they do in case of a floating exchange rate regime.

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter31: Open-Economy Macroeconomics: Basic Concepts

Section31.2: The Price For International transaction: Real And Nominal Exchange Rate

Problem 2QQ

See similar textbooks

Related questions

Q: Which of the following statements is true? OA. When a large proportion of income is spent on a…

Q: Costs of production for each competitive firm is given by: C(q) = 1 + q2. Market demand is Qd =…

A: In a perfectly competitive market, there are large number of firms producing similar and identical…

Q: if both x1 and x2 are "bads", utility will increase i) As x1 or x2 increases ii) As the marginal…

A: Dear student, as you have posted multiple questions but according to the policies and guidelines of…

Q: J 4 a. Define an Indifference Curve (IC)

A: a. Indifference curve An IC or indifference curve is a diagram depicting the combination of two…

Q: 21

A: Short run production function means where only one factor is variable in nature and other factor…

Q: 1) The principle that "More is better" results in indifference curves A) not intersecting. B)…

A: Dear student, you have asked multiple questions in a single post. In such a case, I will be…

Q: a. Increasing costs can force the cost basis of two trading nations to converge b. Labor union…

A: Partial specialization takes place while nations have interaction in alternate with every other. It…

Q: give an example each of firms that you feel have small, moderate and large MES

A: The minimal efficient scale (MES) is the lowest point on a cost curve where a company can create a…

Q: Assume in the market with two consumers, Chloe and Oliver. Chloe's utility function is U(x, y) = 2x…

A: When there are no more adjustments that can be made to the economy that can make one person better…

Q: In a small open economy, if domestic saving equals $50 billion and domestic investment equals $50…

A: Given: Savings = $50 billion Investment = $50 billion.

Q: Can you answer the statement with it depends: Manufacturing highly standardised products are…

Q: Evaluate ‘utilitarianism’ as a moral doctrine that underpins ethical values

A: Introduction Utilitarianism has given by Jeremy Bentham and J. S. Mill. The term Utilitarianism has…

Q: A consuMER hAS A UTILITY FUNCTION v(x, y) = MAX (2x+y) (x+3y) he consumes(1,0) in equilibrium THEN…

A: The utility function is used to calculate a consumer's happiness or satisfaction as a consequence of…

Q: Question 15 If the GDP is at 7.1% growth and the RGDP is at 2.2% growth, then the inflation rate is

A: Ans. 15. The inflation rate by approximation formula is the difference between real GDP and Nominal…

Q: How does the size of deadweight loss (DWL) depend on the price elasticities?

A: Deadweight loss is cost to one or the other shopper or maker made because of shortcoming in…

Q: Increased employment Increased competition Economic expansion Previous Activity Increased economic…

A: In a market, entrepreneur plays a significant role in the overall growth and development of the…

Q: d every 9,000 miles along with the oil (5 quarts). Between each oil change, one quart of oil must be…

Q: Given the following data R = $1/¥105 F = $1/¥140 i(u.s.) = 10% What is the interest rates in Japan…

A: The value of one country's currency in relation to the currency of another country or economic zone…

Q: Engineering Economics (Replacement Analysis): Please answer the following provide explaination and…

A: Given; For overhead crane:- Estimated life; n=10years Crane can now be sold for ₱800000 Cost of…

Q: Kevin invests $5000 at an APR of 5.6% compounded monthly. Carl invests $4800 at an APR of 6.2%…

A: Given values: The investment amount of Kevin = $5000 The investment amount of Carl = $4800

Q: Is it true that if a firm’s technology exhibits the decreasing return to scale, then average…

A: Introduction The scale of production in two factor production function means a given amount of labor…

Q: The figure shows the supply curve of lead Between points A and B, the elasticity of supply is OA.…

A: Elasticity measures the responsiveness of quantity supplied to changes in price.

Q: If both the fixed and variable costs associated with a product decrease, what will be the effect on…

A: The breakeven point is determined by partitioning the fixed costs of production by the cost per unit…

Q: OA. When a large proportion of income is spent on a product or service, the more elastic the supply…

A: Elasticity is supply is a concept in which the change in quantity supplied is measured as a result…

Q: 1) The principle that "More is better" results in indifference curves A) not intersecting. B)…

A: An indifference curve shows a blend of two merchandise that give a buyer equivalent fulfillment and…

Q: Which of the following is true in the United States? O A. Only state governments can collect taxes.…

A: The answer is - D. Only the federal government can collect taxes

Q: Sandra has a short-run cost function of producing good 1 of c(q) = 4q² + 40 where q is the quantity…

A: Given the information: TC = 4q2+40Price = P = MR = $24

Q: In the July 29, 2001, issue of The Journal News (Hamilton, Ohio), Lynn Elber of the Associated Press…

A: Probability is the extension of mathematics involving numerical definitions of how probable a…

Q: APA format References on Sustainable development

A: Sustainability underscores meeting the current essentials without compromising on the capability of…

Q: Which of the following would benefit producers, harm consumers and reduce total surplus? Increase of…

A: Disclaimer- “Since you have asked multiple question, we will solve the first question for you as per…

Q: Foreign direct investment tends to be inexpensive, but it gives companies very little control of…

A: A acquisition of a stake in a local business by a corporation or individual based in another country…

Q: Consider three economies,each of which has GDP per capita of $100. Trend growth in these economies…

A: GDP per-capita of the country is $100. Trend growth of Economy 1 = 2%, 2.5% and 5% respectively…

Q: a. What is the labor rate variance for the month? b. What is the labor efficiency variance for the…

A: division of labour, the separation of a work process into a number of tasks, with each task…

Q: how does discount rate affect inflation?

A: Answer: Introduction: Discount rate: it refers to the short-term interest rate charged by the…

Q: 1. The production possibilities curve represents: (select only one option) A. The production…

A: Production Possibility Curve The production possibility curve is also known as the curve which may…

Q: What is meant by the balance of trade? 10 13 16 V 19 22 25 14 17 20 23 12 15 18 21 24 a It is the…

A: In an economy the term balance of trade is used to explain the openness of a country as it is…

Q: 3. You are working as a researcher in an economic Institute, you want to study the lation between…

A: 1. The economic meaning of the coefficient is that when the everything held constant by what…

Q: Even though Polly Pockets toys made in China posed a choking hazard, the U.S. continues to import…

A: Polly Pockets toys made in China were stopped by the US owing to choking hazards caused by the toys.…

Q: hat are some of the economic problems Filipinos face in the present time? What needs to be done?

A: Unemployment , inflation, low growth , deflation , stagflation ,poverty ,income inequality etc are…

Q: 7. The long-run aggregate supply curve and short-run adjustments The following graph shows an…

Q: The Goal of is to promote price stability, full employment, and economic…

A: An economy can arrive at price stability when the supply of money in an economy rises to the…

Q: When the old AT&T had a virtual monopoly on long distance service, it created a rate structure that…

A: Here, the information about the different rate structure of the old AT&T that has a virtual…

Q: Buggatti is a luxury automobile brand that sells extremely expensive vehicles. The base model of its…

A: The GINI coefficient value lies between zero and one. The value of zero indicates perfect equality…

Q: U= 5x1 1/2 + 2x2. What is the marginal rate of substitution at (1, 4)? Round your answer to two…

A: Answer: Note: we are not allowed to provide handwritten solutions. Given, Utility function:…

Q: The concept of markup under monopolistic competition would best be described as the a. attempt of…

A: Monopolistic competition is a kind of market structure in which there are several numbers of…

Q: Using the following table about product X, answer the following question: How much is the price of…

A: The total revenue from the sale of a particular quantity of products or services is referred to as…

Q: Explain the factors that might cause a country’s exchange rate to depreciate.

A: A fall in the conversion scale/exchange rate is known as a depreciation in the conversion scale. It…

Q: Suppose that supply and demand for vaccines can be represented by P = 100+305 and P = 500-Q,…

A: Competitive equilibrium In a competitive market with freely determined prices, competitive…

Q: The following prices and quantities produced were recorded in computer land during the years shown…

A: Dear student, you have asked multiple sub-part questions in a single post.In such a case, as per the…

Q: coordination requirements intellectual property issues capacity strategic control Select all of the…

A: 1 Answer- Coordination requirments, Capacity, Strategic control Explanation - As the coordination…

Question

Explain why in case of a fixed exchange rate regime
temporary and permanent fiscal policy changes do not
have different effects on output and the exchange rate
in the short run as they do in case of a floating
exchange rate regime.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?
What is happening to the U.S. real exchange rate ineach of the following situations? Explain.a. The U.S. nominal exchange rate is unchanged,but prices rise faster in the United States thanabroad.b. The U.S. nominal exchange rate is unchanged, butprices rise faster abroad than in the United States.c. The U.S. nominal exchange rate declines, andprices are unchanged in the United States andabroad.d. The U.S. nominal exchange rate declines, andprices rise faster abroad than in the United States.
In an open economy, a permanent beneficial suply shock (s< 0)implie tha the domestic real exchange rate wil: Oappreciate as the est of the word buys the domestic curency Oremain unchanged because of fsetig movements n he domestic prie level Oremain unchanged because of ffseting movements in realinteret rates Odepreciate so as to crowd-in net exports
In an open economy under flexible exchange rates where the central bank keeps money supply fixed, a tax cut will cause an increase in which of the following?net exportsthe exchange rate, Eexportsall of the abovenone of the above
Suppose that Americans decide to increase theirsaving.a. If the elasticity of U.S. net capital outflow withrespect to the real interest rate is very high, willthis increase in private saving have a large orsmall effect on U.S. domestic investment?b. If the elasticity of U.S. exports with respect to thereal exchange rate is very low, will this increase inprivate saving have a large or small effect on theU.S. real exchange rate?
In the Mundell-Flemming model with floating exchange rates, explain whathappens to aggregate income, the exchange rate and the trade balance whentaxes are reduced. Contrast what would happen if exchange rates were fixedrather than floating?
A case study in the chapter analyzed purchasingpower parity for several countries using the pricc ofBig Macs. Here arc data for a few more countries: a. For each country, compute the predicted exchangerate of the local currency per U.S. dollar. (Recallthat the U.S. price o( a Big Mac was $4.93.)b. According to purchasing-power parity, what is thepredicted exchange rate between the Hungarianforint and the Canadian dollar? What is the actualexchange rate?c. How well docs the theory of purchasing-powerparity explain exchange rates?
If a country’s currency is expected to appreciatein value, what would you think will be the impact ofexpected exchange rates on yields (e.g., the interest ratepaid on government bonds) in that country? Hint: Thinkabout how expected exchange rate changes and interestrates affect a currency's demand and supply
For a given real exchange rate how are a country s For a given real exchange rate, how are a country’s net exports affected by an increase in domestic income? an increase in foreign income? How does an increase in the domestic real interest rate affect the real exchange rate and net exports? Explain. For a given real exchange rate how are a country s
Consider the following economy:- Mariginal propensity to save = 0.2 Mariginal propensity to import = 0.2 Investment = $500 Governement spending = $300 Taxes = $ 200 Exports = $400 Autonomous import spending = $100 Given this information, beginning at the intial equilibirum output, suppose instead that exports rise by 50. What is the change in current account balance? A: -$25 B: $45 C: -$75 D: $35 E - None of the above
Consider the foreign exchange market. For each of the scenarios below, answer thefollowing questions: (1) Which curve moves? (2) In which direction does it move? (3)What happens to the nominal exchange rate in equilibrium (i.e., does the US Dollarappreciate or depreciate)?(a) Brazil places tariffs on US products, limiting imports from America.(b) The US becomes a much riskier place to invest because of widespread politicalunrest.(c) Firms in the UK become much more profitable than those in the US.(d) The global economy surges, sparking higher consumption everywhere in the world.(e) Japan’s central bank cuts interest rates in that country.(f) Mexico’s firms do a much better job of marketing their products to the UnitedStates.
What would be the effect of a devaluation on a country’s imports and exports? If a country imports most ofthe goods included in the basket of goods and servicesused to calculate the CPI, what do you think the effectwill be on this country’s inflation rate?