Starting with the equilibrium in the IS-LM-FX model show graphically and explain the effects on interest rate, output and exchange rate of a temporary expansionary fiscal policy. Assume a floating exchange rate.
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- Using Mundell-Fleming model, analyze the effect of a fiscal expansion on the economy under floating and fixed exchange rate regimes. Draw necessary diagrams.Using the IS-LM-UIP diagram, show and explain the effect of the increase in taxes in the fixed exchange rate regime. Comment the efficiency of such shock.Is the open economy IS-LM model, describe the effects of fiscal and monetary contractions with fixed and floating excange rates.
- For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. Note: Assume the government responds by using monetary policy to stabilize output and assume the exchange rate is floating. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, and TB. a. Foreign output decreases. b. Investors expect a depreciation of the home currency. c. The money supply increases. d. Government spending increases. Please illustruate the IS-LM model and explain in detail. I want to understand for the upcomming testIn the short run of a model with sticky prices, a reduction in the money supply raises the nominal interest rate and appreciates the currency. In this case the country's expected real interest rate will In addition, the real exchange rate, after initially will subsequently The latter movement of the real exchange rate satisfies the real interest parity condition which indicates that a country's currency will be expected to undergo a real depreciation when its real interest rate ▼real interest rates elsewhere.Within the context of the Mundell-Fleming Model under a fixed exchange rate system, describe how the economy would respond to expansionary fiscal policy a.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by engaging in expansionary monetary policy like increasing government sending in order to increase national income b.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by engaging expansionary monetary policy like open market operation to increase national income. c.There will be no intervention since the exchange rate is already fixed and cannot be changed. d.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by selling domestic currency in the foreign exchange market.
- In the Mundell-Fleming model with a floating exchange rate, what happens to the following variables when there is a decrease in business confidence about the future so firms invest less? Include a graph. a. Aggregate Income b. Exchange Rate: c. Trade Balance:How and why will switching from a fixed to flexible exchange rate regime affect exports as a percentage of GDP/Exports-GDP-ratio Plz do fast.Consider the IS-LM model of open economies. Draw the IS, LM curves and decribe the economic meaning of the two curves. Analyze how the increase of government spending and real exchange rate affect the IS curve, how the increase of money supply would affect the LM curve, respectively. Finally, decribe what is the aggragate demand (AD). Draw the AD curve and analyze what factors would affect the location of the AD curve.
- Q3-19 The IS/LM/BP analysis suggests that, if the BP curve is flatter than the LM curve and the exchange rate is flexible, expansionary fiscal policy will lead to _______ of the country's currency.This will make the fiscal policy _______ effective in influencing national income than if the country had a fixed exchange rate. Select one: a. a depreciation / more b. a depreciation / less c. an appreciation / more d. an appreciation / lessUsing the model that we have developed, show what would happen with a new equilibrium domestic price level and real output if the Central Bank increases the policy rate. 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?Using the IS-LM-FX model, illustrate how each of the following scenarios affects the home country. Compare the outcomes when the home country has a fixed exchange rate with the outcomes when the home currency floats.(use graphs) a.The foreign country increases the money supply. b.The home country cuts taxes. c.Investors expect a future appreciation in the home currency.
