Using the IS-LM -FX diagram, show graphically and explain the effects of an expansionarymonetary policy under a fixed exchange rate regime. What happens to output, interest rate, andthe exchange rate?

To analyze the effects of an expansionary monetary policy under a fixed exchange rate regime using…

Answered: Using the IS-LM -FX diagram, show…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter18: Globalization

Section: Chapter Questions

Problem 13E

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Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?
The benefits of adopting a flexible exchange rate is that, a.in response to shocks to the demand for Australian exports, the value of the currency would adjust to moderate these effectsb. changes in the interest rate will have no effect on the exchange rate that is determined in the foreign exchange market c.the exchange rate can be more volatile d. an economy will be able to well predict the prices of exports and imports Why A is the correct answer? What is meant by a flexible exchange rate?
Define nominal exchange rate and real exchange rate. What are the two main types of exchange-rate systems? What explains the behavior of net exports represented by the J curve? How does real exchange rate affect net exports? Explain and give one example.
How do the nominal exchange rate and the real exchange rate differ? How do we find the realexchange rate from the nominal exchange rate?
So, what has happened to the USD-EUR exchange rate over the past year or two? Can you tell anything about what you would do from looking at the trends? Has the USD appreciated or depreciated vs. the EUR
What is the real exchange rate, and how are fluctuations in the real exchange rate related to deviations from absolute PPP?
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:
Suppose world interest rates go up, driving the world into a recession (that is, world income falls). Use the AD-AS model to analyze how this affects prices and income in our national economy. Do your results depend on whether exchange rates are fixed or flexible?
Suppose more companies begin to “nudge” their employees into saving for retirement throughthe use of automatic enrollment plans. Use the long-run model of a small open economy to graphically illustrate the impact of the rise in retirement savings on the exchange rate and the trade balance. Explain the results of your graphical analysis in detail. Assume that the country starts from a position of the trade balance. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction that the curves shift; and v. the new long-runequilibrium values
The Small Open Economy macroeconomic model assumes that GDP is constant. However, the model could be used to analyze the effects of a one-time increase in GDP as a rightward shift of the supply of loanable funds. What would the model predict about the real interest rate, net capital outflow, net exports, and the real exchange rate when GDP increases? B v E E Pa... v ...
In the following problem, assume that the UK currency is the pound sterling (PST) and the currency in the rest of the Europe is the euro (EUR). a. Suppose that the PST appreciates relative to the EUR. For the following parts, you will not receive any credit without providing an explanation. In the UK: ‐ How would the import demand change? Why?
Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the EUR/USD exchange rate. Given this change in exchange rate, how would firms and customers be affected? professors note Supply and demand for currencies can be tricky, not least due to the confusing idea that what we are buying or selling is money itself! Once you can wrap your mind around the idea that money is what is being obtained for other money, the next set of questions relates to what would or could make the price of one money change in terms of another. To this effect, I'd recommend a primer from Investopedia: Six Factors That Influence Exchange Rates. For your consideration in responding to this post, I suggest reading on how the Carry Trade has the capacity to magnify systemic risk.

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Using the IS-LM -FX diagram, show graphically and explain the effects of an expansionary monetary policy under a fixed exchange rate regime. What happens to output, interest rate, and the exchange rate?