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 19, Problem 6CQ
To determine
Reason behind making the current account and capital account sum equal to zero.
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Economics: Private and Public Choice (MindTap Course List)
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- If the European euro were to depreciate relative to the U.S. dollar in the foreign exchange market, would it be easier or harder for the French to sell their wine in the United States? Suppose you were planning a trip to Paris. How would depreciation of the euro change the dollar cost of your trip?arrow_forwardPrices in Country A sharply rose due to a supply shortage and led to high levels of inflation in the economy. What effect is this price increase likely to have on domestic currency in the foreign exchange market? Country A's domestic currency will see an appreciation, in relation to currencies of other trading partners. Country A's domestic currency will see both appreciation and depreciation, in relation to currencies of other trading partners. Country A's domestic currency will see no change, in relation to currencies of other trading partners. Country A's domestic currency will see a depreciation, in relation to currencies of other trading partners. There is insufficient information to draw a conclusion.arrow_forwardA small open economy has perfect financial capital mobility, no risk premium, a flexible exchange rate and can be described by the following: C = 4000 + 0.75(Y - T) Y(FE) = 75,000 | = 5000 - 1000r MS = M = 21480 G = 6000 Real money demand = ( 0.25Y - 2500r ) Gov't Budget surplus = 0 Nominal price level = 1.20 World real rate of interest NOTE: Keep your answers to 2 decimals. Part A) Derive the IS* curve and the LM* curves. Solve for the initial short-run equilibrium, levels of real GDP, nominal exchange rate, consumption, investment and the trade balance. Part B) Suppose the government implements a tax cut of 64. Solve for the new short-run equilibrium, levels of real GDP, nominal exchange rate, consumption, investment and the trade balance. Part C) Suppose the government decides not only cut taxes by 64 but they also order the central bank to fix the exchange rate at 1.00. Explain in words and with the aid of a single Y-e diagram what impact this will have on the short-run levels of…arrow_forward
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