Answered: exports and the IS curve: Consider the…

exports and the IS curve: Consider the way in which net exports dependon the real exchange rate. Does the dependence of net exports on the realexchange rate make the IS curve steeper or fatter?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: based on the table above, is the exchange rate of dollars to pounds fixed or flexible? Explain

A: The exchange rate between the United States dollar (USD) and the British pound (GBP) is a dynamic…

Q: Suppose the US government reduces taxes on income allocated towards retirement savings. As…

A: The exchange rates refer to the rate at which the people use the domestic currency to buy foreign…

Q: depreciation

A: Currency appreciation occurs when a currency's cost increases relative to every other foreign money.…

Q: trade surplus (exporting more than importing) and trade deficit (importing more than exporting) on…

A: The ‘balance of trade’ (BOT) is the sum of a country's import and export. The BOT is positive(+)…

Q: Consider the following equation: NX(ɛ) = S - I(r*) This equation is used to draw the diagram…

Q: Given your answer to the previous question, fill in the blanks to make this a correct sentence:…

A: There are two types of GDP: real GDP and Nominal GDP. The Nominal GDP is the money value of goods…

Q: Derive the AD curve (representing medium run combinations of real exchange rate and output, where…

A: The IS-LM model examines the equilibrium in an economic system, considering interactions among the…

Q: To maintain the pegged exchange rate, the Chinese Central Bank used yuan to buy large quantities of…

A: Pegged exchange rate: It refers to the fixed exchange rate of the system. Under this system, the…

Q: Suppose Indonesia drastically decreases the size of their import quota for red onions. Use the…

A: Exchange rate:It is the rate at which currencies are exchanged for another currency. It affects the…

Q: Divide the economy into two sectors: tradable (T) and non-tradable (NT). Both sectors can be…

A: On the plane (L vs. K): The fall in the real exchange rate would likely lead to an increase in the…

Q: If the foreign price level increases by 3%, and the domestic price level increases by 20%, by…

A: In a foreign market, the price of exchange of one currency for another is referred to as the…

Q: Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the…

A: Carry trade is a strategy when the funds are withdrawn from the country with low interest rate and…

Q: Macroeconomics. Explain how the exchange rate adjusts to a temporary decrease in the foreign…

A: The factors like inflation, government debt, trade deficit, current account deficit, and other…

Q: Using the model that we have developed, show what would happen with a new equilibrium domestic price…

A: Policy Rate: Policy rate refers to the interest rate set by the Central bank as part of its monetary…

Q: Under a closed system, when net exports equals 0, what must be true about investment spending? A…

A: Under a Closed economy a country doesn't engage to other countries but that produced to itself .

Q: 1.1 What is the difference between the nominal exchange rate and the real exchange rate? When a…

A: The foreign exchange rate is a rate at which one country's currency is exchanged for another…

Q: 4. Net capital outflow and net exports An open economy interacts with the rest of the world through…

A: Every transaction between US citizens, businesses, governments, and other organisations and those in…

Q: Consider a small open economy currently in a steady state with zero net exports and investment of…

A: In a nation, an excess of investments domestically over the savings can result in a situation of a…

Q: Assume that an open economy with a floating exchange rate is described by the equations: C =…

A: The measure that depicts the value of one currency being measured in terms of another currency in…

Q: Q)How do higher interest rates affect the exchange rate? Answer including graphs

A: The exchange rate is the price of one currency in terms of the other currency. Whenever one has to…

Q: Assuming actors have not yet had time to change their expectations about the future exchange rate,…

A: The supply curve shows the diagrammatic relationship between the price of the good and the quantity…

Q: A small open economy is described by the following equations: C = 300 + 0.8(Y - T) | = 220 - 40r NX…

A: An open economy is an economy that is open to trade with other countries. The exports and imports of…

Q: What will happen if exchange rate fluctuate? (please do not copy answers on the internet, thank you)

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

Q: ange rat

A: Economic impact refers to the economic activity levels in a certain area.

Q: Consider a small open economy with the following information: C = 50 + 0.80 (Y – T) I= 200 – 2,000r…

A: The equilibrium exchange rate is the long-term exchange rate that equals the purchasing power parity…

Q: Would each of the following transactions be included in U.S. net exports or in U.S. Net capital…

A: Net exports, denoted as NX, signifies the contrast between a nation's exports (X) and imports (M). A…

Q: Assume that the amount of dollar (domestic) assets is fixed in the foreign exchange market. Explain…

A: The objective of the question is to understand the impact of an increase in foreign interest rates…

Q: The exchange rate at the beginning of the year was SF1.0000/$. The price level of a typical…

A: The real exchange rate is a measure that compares the prices of goods and services between two…

Q: Does an expectation of a stronger exchange rate in the future affect the exchange rate in the…

A: The exchange rate refers to trading account that a country charges other country for the imports and…

Q: If the interest rate in the United States rises, A) investors increase their demand for dollars…

A: (Q)If the interest rate in the United States rises, A) investors increase their demand for dollars…

Q: How does a fundamental increase to the net export in a small open economy potentially impact the…

A: A fundamental increase in net exports in a small open economy can potentially impact the exchange…

Q: Define nominal exchange rate and real exchange rate. What are the two main types of exchange-rate…

A: The rate of exchange signifies the worth of one currency to an overseas currency. In different…

Q: Assume that the amount of dollar (domestic) assets is fixed in the foreign exchange market. Explain…

A: The objective of the question is to understand the impact of an increase in domestic interest rates…

Q: Suppose a country imposes an import tariff (as a topical real-world example, think about the U.S.…

A: Import tariff refers to a tax which is imposed on imports by the domestic country, so that foreign…

Q: When you write an exchange rate in terms of how many units of a foreign currency it takes to buy one…

A: A direct quote depicts the amount of foreign currency that can be bought for a certain unit of the…

Q: An exchange rate is the domestic price to purchase one unit of a foreign currency. For example, how…

A: Law of One Price, states that in the absence of trade barriers and transaction costs, identical…

Q: If a French car costs 10,000 euros, a similar American car costs 15000 dollars, and a euro can buy…

A: The nominal exchange for EUR/USD as per in the question is given as 1.2.That is in generall or…

Q: A rise in interest rates tends to contract the economy by appreciating the currency and reducing net…

A: Currency appreciation: It is an expansion in the estimation of one money corresponding to another…

Q: Suppose that a country experiences inflation while the nominal exchange rate and the price level in…

A: The rate that depicts the value of one currency that is being measured in terms of another currency…

Q: What determines the real exchange rate and what determines the nominal exchange rate in a small open…

A: For the production and consumption of goods, economic agents have derived a barter system. In the…

Q: The effect that a change in the price level has on a country's exports and imports is called the:…

A: Exports are the goods and services produced within a country's borders and sold to foreign markets.…

Q: Which of the following statements is true? A)The open-economy IS curve is derived in the same way…

A: The closed-economy IS curve shows the combinations of interest rates and real GDP that result in…

Q: Based on the discussion of these two ideas in this chapter which of the below statements would you…

A: Purchasing Power Parity-it is a technique used to measure currencies of different nations with the…

Q: Indicate whether each of the following transactions represents an increase in net exports, a…

A: 1) A German citizen buys an Apple computer: As apple is a company of the U.S, a citizen of German…

Question

exports and the IS curve: Consider the way in which net exports depend
on the real exchange rate. Does the dependence of net exports on the real
exchange rate make the IS curve steeper or fatter?

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

Using words and a graph, explain how the equilibrium in the foreign exchange market takes place. Make sure that, as part of your answer, you refer to the related equation.
Give an example of how a change in the exchange rate alters the relative price of domestic goods in terms of foreign goods.
If the foreign price level increases by 4%, and the domestic price level increases by 17%, by what percent should the exchange rate of domestic currency per foreign currency increase, given relative PPP holds? Your answer should be an integer with a % sign assumed to follow (e.g., if you wish to say 48 percent, write 48). The percent increase in the exchange rate should be
Suppose that in Tunisia, a small open economy, savings initially exceeds investment. Due to events in the European economy, there is a decline in the world real interest rate. Using a supply and demand diagram, explain what happens in the savings and investment market in Tunisia. Be sure to show in the graph and explain what happens to net exports and net capital outflows. Assume initially that investment exceeds savings in Tunisia.
It is possible to assert that the exchange rate is endogenous in the equation system nx = c1 + c2 y + c2 ex + u, where nx is net exports, y is gross domestic product, and ex is real exchange rate. Defend this assertion.
First, write out the expression for the real exchange rate. Second, explain all factors that determine the real exchange rate. (10 words max)
Consider the following open economy. Real GDP Consumption Government Expenditures Investment Exports Taxes Transfers 1,000 800 115 280 22 195 79 What is net foreign investment (NFI)? Round to two decimal places, enter the negative sign if appropriate, and do not enter a currency symbol. If your answer is $1.125, enter 1.13.
Data from The Economist BigMac index from January 2022 shows that the localprice of a Big Mac in Argentina is 450 Argentine pesos (ARS) and the price of a BigMac in Britain is 3.59 pounds sterling (GBP). The exchange rate XARS/GBP = 140.895.Assume there is no bid-ask spread. Calculate the pound sterling price of a Big Mac in Buenos Aires (capital ofArgentina) and the Argentine peso price of a Big Mac in London (capital ofthe UK)
Assume that in 2010, Country A had an exchange rate of 0.770.77 units of national currency (UNC) per U.S. dollar (USD). By 2015, Country A's budget deficit increased, and Country A decided to issue bonds to finance the deficit. As a result, the exchange rate changed by UNC0.06UNC⁢0.06. Calculate the 2015 exchange rate.
Using the model that we have developed, show what would happen with a new equilibrium domestic price level and real output if the government increases government spending that are fully financed by increase of taxes (change of government spending is equal to the increase of taxes). What will be the size of the AD curve shift? Keeping nominal exchange rate and foreign price level constant, what will happen with the real exchange rate, import and net export?
Consider the model that relates the net export and the real exchange rate. Discuss the impact that imposing an import quota has on the trade position and real exchange rate of an economy. Make sure that you use both words and figures to explain your logic.
In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate? (explain the answer) a. 4/2.7 loaves of British bread per loaf of French bread b. 3.6/3 loaves of British bread per loaf of French bread c. 3/3.6 loaves of British bread per loaf of French bread d. 2.7/4 loaves of British bread per loaf of French bread