Homework (Ch 15)REAL GDPSuppose the Federal Reserve decides to sell bonds in order to decrease the money supply.Complete the following paragraph to show the effects of such a policy in an open economy.Because this ismonetary policy, aggregate demand willwhich causes both real GDP and the price leveltoIn a closed economy, this is the total effect of such a policy. However, in an open economy, it is necessary to consider changes to interestrates and thus the exchange rate. Since this kind of monetary policyinterest rates, this means that American securitiesaggregate demand andbecomeattractive to foreign investors. This currencysupply.SearchGiven the information in the previous paragraph, determine which aggregate demand curve must be the initial AD curve, the new AD curve if theeconomy is closed, and the new AD curve if the economy is open. (Hint: The number labels on the graph are for identification only and do not implyany particular order of shifts.)87HHiaggregateaX3:53 PM12/9/2022A-Z19 Homework (Ch 15)PRICE LEVEL+BQ Search++FCCHE+DADREAL GDPAS₁1AASAD 0AD0871|O8P<O4)X3:52 PM12/9/2022A-Z«20

The most prominent tool of central bank to influence the economy is monetary policy .In monetary policy, economy is influenced by changing the money supply .Central bank uses contractionary monetary policy at the time of inflation in the economy. Given that ,aggregate demand(AD) curve shifts rightward. Aggregate demand curve shifts rightward due to increase in money supply which is a expansionary monetary policy .If AD is shifting rightward , it means EMP( expansionary monetary policy) has been used by central bank. When central bank uses EMP , AD will shift rightward .When AD curve shift right ,both real GDP and price will rise as shown in the given diagram. Note that rise in money supply will increase the liquidity in the market. In other words, rise in money supply will increase the supply of loans from commercial banks. Due to excess supply of loans, interest rate will fall in the economy. When the interest rate of a country A falls, investors will decrease their investment in country A and invest in other countries that have more interest rate to earn more returns .In other words, country A becomes less attractive due to fall in interest rate in country A. The rise in outflow from country A due to decrease in interest rate will depreciate the currency of country A .But , depreciation of currency makes services and goods cheaper in country A which increases foreign demand .It will increase aggregate demand curve but aggregate supply will remain unchanged .So, a depreciation in country A will increase aggregate demand curve but aggregate supply will remain constant . Thus , expansionary monetary policy will shift AD curve rightward that causes output and real GDP to rise . Expansionary monetary policy will decrease interest rate making country A securities less attractive to foreign investors. The less attractiveness of securities will increase outflow of funds from country A .Currency will depreciate which increases aggregate demand curve with constant aggregate supply curve.Ad curve shifts rightward due to expansionary monetary policy which rises price and output. It also lead to fall in interest rate which depreciates currency and shifts AD curve rightwards and AS remains unchanged.

Business

Economics

Homework (Ch 15) REAL GDP Suppose the Federal Reserve decides to sell bonds in order to decrease the money supply. Complete the following paragraph to show the effects of such a policy in an open economy. Because this is monetary policy, aggregate demand will , which causes both real GDP and the price level to . In a closed economy, this is the total effect of such a policy. However, in an open economy, it is necessary to consider changes to interest rates and thus the exchange rate. Since this kind of monetary policy interest rates, this means that American securities become attractive to foreign investors. This currency aggregate demand and supply. ▼aggregate X

Homework (Ch 15) REAL GDP Suppose the Federal Reserve decides to sell bonds in order to decrease the money supply. Complete the following paragraph to show the effects of such a policy in an open economy. Because this is monetary policy, aggregate demand will , which causes both real GDP and the price level to . In a closed economy, this is the total effect of such a policy. However, in an open economy, it is necessary to consider changes to interest rates and thus the exchange rate. Since this kind of monetary policy interest rates, this means that American securities become attractive to foreign investors. This currency aggregate demand and supply. ▼aggregate X

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

Please do the work handwritten if you can and include the names of the formulas used and any other rules that need to be followed when solving these problems.
2. The Ricardian Model and Argentina Below are several questions about the Ricardian Model in the context of Argentina as a small open economy (Argentina takes world prices as given). Some information about Argentina: Argentina can produce two goods: manufactures and beef. The technology to produce manufactures and beef both only use labor and they have constant marginal products of labor. The marginal product of labor in manufactures is 3. The marginal product of labor in beef production is 8. a. In autarky (i.e. no international trade) what is the relative price of beef to manufactures? b. Suppose that Argentina is a "small open economy", that is it takes world prices as given and Argentina will have no impact on international supplies and prices. If the world relative price of beef to manufactures is 1/2, will international trade benefit those in Argentina? If so, what product will Argentina export? What product will it import? c. Suppose that Argentina's labor force equals 100…
Sub : EconomicsPls answer very fast.I ll upvote. Thank You a small open economy is described by the following equations: C = 50 + .75(Y-T) I = 200 - 20r NX = 200 -50e M/P = Y -40r G = 200 T = 200 M = 3000 P = 3 r* = 5 a. Derive and graph the IS* and LM* curves. b. Calculate the equilibrium exchange rate, level of income, and net exports c. Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, net exports and the money supply if the government increases spending by 50. Use graph to illustrate what you find. d. Now assume fixed exchange rate. Calculate what happens to the exchange rate, the level of income, net exports and the money supply if the government increases spending by 50. Use graph to illustrate what you find.
Consider the aggregate economy represented by the graph below. Assume the economy is initially in equilibrium at point A. How would the equilibrium price and quantity change if changes in currency exchange rates make exports cheaper? Price level (GDP deflator. 2009-100) P₁ LRAS₁ GDP SRAS₁ Real GDP (trillions of 2009 dollars) AD₁ The equilibrium price would rise and the equilibrium quantity would fall. The equilibrium price and quantity would remain unchanged. The equilibrium price and quantity would rise. The equilibrium price and quantity would fall.
My dear bro not hand written.
Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 3.30 trillions of rupees. Individuals consume: 11.10 trillions of rupees. Individuals save: 4.96 trillions of rupees. Businesses invest: 1.20 trillions of rupees. Foreigners spend: 0.61 trillions of rupees to purchase Pakistani firms. Pakistan imports: 2.05 trillions of rupees. Pakistan exports: 1.24 trillions of rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals. Pakistan's GDP: trillions of rupees
question 2