Problem 4. Equilibrium interest rate and exchange rate.( Using the framework relating money supply/demand to interest rates presented in the textbook, for each of the following events (i) determine graphically its effect of either money supply or money demand and its direct effect on the equilibrium interest rate; (ii) mention the effect that the movement in the interest rate would have on capital outflows/inflows and (iii) explain its impact on the exchange rate. a) As a result of the Great Recession, the central bank implements a quantitative easing strategy and buys government bonds. b) Real GDP is below the full employment level, government decides to decrease taxes. c) The central bank decreases the growth rate of the money supply. d) The war in Russia causes all kind of consumer prices to risc.

Problem 4. Equilibrium interest rate and exchange rate.( Using the framework relating money supply/demand to interest rates presented in the textbook, for each of the following events (i) determine graphically its effect of either money supply or money demand and its direct effect on the equilibrium interest rate; (ii) mention the effect that the movement in the interest rate would have on capital outflows/inflows and (iii) explain its impact on the exchange rate. a) As a result of the Great Recession, the central bank implements a quantitative easing strategy and buys government bonds. b) Real GDP is below the full employment level, government decides to decrease taxes. c) The central bank decreases the growth rate of the money supply. d) The war in Russia causes all kind of consumer prices to risc.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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