Suppose that with all exogenous variables at their original values, the autonomous part of money demand increases to 70. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached. based on your answers to parts (e) and (f), evaluate the role of floating rates as automatic stabilisers when exogenous shocks hit the economy. Following on from the analysis in the previous questions, an economist comes to the conclusion that the best option for policymakers in order to influence the economy would be to fix the exchange rate, keep control of money supply and allow free movement of capital. Would you agree with such a statement and why?
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Suppose that with all exogenous variables at their original values, the autonomous part of money
demand increases to 70. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached. -
based on your answers to parts (e) and (f), evaluate the role of floating rates as automatic stabilisers when exogenous shocks hit the economy.
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Following on from the analysis in the previous questions, an economist comes to the conclusion that the best option for policymakers in order to influence the economy would be to fix the exchange rate, keep control of money supply and allow free movement of capital. Would you agree with such a statement and why?
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