In a short-run model of a large open economy with a floating exchange rate, if business expectations become pessimistic, this leads to a fall in:   A) the exchange rate and a fall in net exports but has no effect of income B) the money supply and an increase in income but has no effect on the exchange rate C) income, the interest rate, and net exports but a decrease in investment and in the exchange rate D) income, the interest rate, and the exchange rate but an increase in net exports

Q: Examine how surpluses and deficits in the balance of payments (BOP) affect exchange rates.

A: Introduction - All central bank transactions are recorded in the account on the balance of payments…

Q: Suppose in the goods market equilibrium of an open economy, saving is $6 billion, and investment is…

A: According to the question, Saving= $6 billion Investment=$8 billion Measurement error =0

Q: Explain why in case of a fixed exchange rate regime temporary and permanent fiscal policy changes do…

A: A fixed exchange refers to when the value of a country's currency is fixed against foreign…

Q: The rate at which one currency can be exchanged for another is the exchange rate.   B) Exchage rates…

A: Exchange rate - The exchange tells us about the worth of the currency of one country in comparison…

Q: small open economy.

A: In a small open economic system, factors which includes interest fees, government guidelines, trade…

Q: Suppose the nominal exchange rate (given as foreign currency per unit of U.S. currency as in class)…

A: When two countries trade with each other, a metric is required to translate the currency of one…

Q: In general, currency crises are associated with severe falls in economic activity. However, a good…

A: GDP, inflation, unemployment, and governmental activities all influence the macroeconomic…

Q: Developing countries like China and India start promoting investment. Use the Mundell-Fleming model…

A: The great degree of integration or connectivity among financial or capital markets is one of the…

Q: A U.S. Congressperson wants to reduce the U.S. trade deficit by imposing tariffs on imports. Use a…

A: The IS-LM model is the Keynesian macroeconomic model which states the relationship between market…

Q: Contrast the effects of having a fixed versus a floating exchange rate for a country’s economy

A: Exchange rate are the currency values which are used by the countries for the purpose of imports…

Q: In a small open economy with perfect capital mobility, the domestic interest rate is determined by…

A: Perfect capital mobility refers to a situation in a financial system where capital, in the form of…

Q: Consider an open economy with floating exchange rates under the Mundell-Fleming framework. Discuss…

A: LM curve shows the direct relationship between interest rate and output. The LM curve is upward…

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: If a country tries to maintain a fixed exchange rate, it must be Multiple Choice O willing to print…

A: Exchange rate refers to the rate at which currency of one nation can be exchanged by one…

Q: Which one of the following statements is the most accurate? Group of answer choices For a fixed…

A: Exchange rate refers to the value of one currency in relation to another. It is the rate at which…

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: For a small open economy, an increase in money supply causes in the short run: an increase in the…

A: The question is asking about the impact of an increase in money supply in a small open economy in…

Q: If the monetary authority contracts money supply and the fiscal authority raises taxes, then in a…

A: When the central bank contracts the money supply with raising the interest rates, it makes the…

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: Assume that Canada has a fixed exchange rate regime. Explain the effect on the foreign exchange…

A: Here, it is given that the Canada has a fixed exchange rate system to make trade in international…

Q: If the equilibrium exchange rate changes so that it takes more dollars to buy a British pound, then:…

A: Equilibrium is achieved at the output level where Qs=Qd