Question 6. Canada is a small open economy. Suppose that the Canadian government significantly increases taxes when the world interest rate rises. Use the long- run model of a small open economy (the model with net export and exchange rate we studied) to graphically illustrate and explain in words the impact of this tax increase (when the world interest rate is rising) on the domestic investment, the exchange rate, the export, the import, and the trade balance. Be sure to label: į, the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the new long-run equilibrium values.

Question 6. Canada is a small open economy. Suppose that the Canadian government significantly increases taxes when the world interest rate rises. Use the long- run model of a small open economy (the model with net export and exchange rate we studied) to graphically illustrate and explain in words the impact of this tax increase (when the world interest rate is rising) on the domestic investment, the exchange rate, the export, the import, and the trade balance. Be sure to label: į, the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the new long-run equilibrium values.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy reduced imports A. of steel into the United States and increased U.S. exports of other goods by an equal amount. B. into the United States and made the net supply of dollars in the foreign exchange market shift right. C. of steel into the United States, but reduced U.S. exports of other goods by an equal amount. D. into the United States and made U.S. net exports rise.
Q2. Since the 1930s, nations have actively pursued internal balance as a primary economic objective.Nations also consider external balance as an economic objective. A nation realizes overall balancewhen it attains internal balance and external balance.To achieve overall balance, nations implement expenditure-changing policies (monetary and fiscalpolicies), expenditure-switching policies (exchange-rate adjustments), and direct controls (price andwage controls). Page 3 of 3Although exchange-rate adjustments primarily influence a nation’s balance-of-payments position (current account), they have secondary impacts on the domestic economy. A nation with a balance-of-payments deficit and high unemployment could devalue its currency to resolve these problems. A nation with a balance-of-payments surplus and inflation could devalue its currency. Such policiesare dependent upon the willingness of other nations to refrain from implementing offsettingexchange-rate adjustments.For an open economy…
The following paragraphs discuss the impact of various economic events on the exchange rate. Complete the paragraphs by filling in the blanks. Use any of the words from the following list (you can use each of these words as many times as you wish): demandsupplyleftrightbuysellimportsexportsrisefallincreasesdecreases What happens to the exchange rate when the current account balance falls?A falling current account balance means that the value of ____ are rising relative to _____. Let's assume that one does rise and one does fall to cause the current account balance to fall. _____ affects the ____ for/of $NZ so a decline in this means ____ for/of $NZ shifts left. _____ affects the Answer for/of $NZ so a rise in this means _____ for/of $NZ to shift right. The combined effect from the fall in the current account balance is that we expect the value of the $NZ to ____. What happens to the exchange rate when New Zealand interest rates fall relative to the rest of the world?A fall in NZ…
Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. In the home country the following relationships hold: { refer to image } b) Suppose that in the home country the desired investment increases by 100, that is, I^d = 400−100r^w. What is the world equilibrium interest rate? What are the equilibrium values of consumption, national saving, investment, and the current account balance in each country?
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Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. Both countries have a zero current account balance initially. When answering the following questions, clearly label the lines and show the changes in the graph provided below. Give an intuitive explanation for the effects in each case. b-What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if home expected future marginal productivity of capital increases? c- What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if foreign country experiences a temporary adverse supply shock?
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I need help soon as possible please. I only have one hour to finish.
The following paragraphs discuss the impact of various economic events on the exchange rate. Complete the paragraphs by filling in the blanks. Use any of the words from the following list (you can use each of these words as many times as you wish): demandsupplyleftrightbuysellimportsexportsrisefallincreasesdecreases What happens to the exchange rate when the current account balance falls?A falling current account balance means that the value of ____(1) are rising relative to _____(2). Let's assume that one does rise and one does fall to cause the current account balance to fall. _____(3) affects the ____(4) for/of $NZ so a decline in this means ____(5) for/of $NZ shifts left. _____(6) affects the _____(7) for/of $NZ so a rise in this means _____ (8)for/of $NZ to shift right. The combined effect from the fall in the current account balance is that we expect the value of the $NZ to ____(9). What happens to the exchange rate when New Zealand interest rates fall relative to the rest…
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