Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 12, Problem 3CQ
To determine
The impacts of budget deficit on dollar exchange rate, net export, and aggregate
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assume that policymakers at the Bank of England enforce an expansionary monetary policy. Using a correctly labeled graph of the foreign exchange market for the U.S. dollar, show how the relative change in interest rates between the U.S. and England will affect the value of the dollar versus the pound. Explain.What affect will this fluctuation have on net exports in the United States?
What is the effect of a fiscal expansion on output and interest rates when exchange rates are fixed and capital is perfectly mobile?
In your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making.
How does an increase in Japan’s government budget deficit affect each of the following?
The real interest rate in the short run in Japan. Explain.
Private domestic investment in plant and equipment in Japan.
Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following.
Supply of euros. Explain.
Yen price of the euro
To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchang market? Explain.
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Economics: Private and Public Choice (MindTap Course List)
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