Question

In: Economics

If a government increases its budget deficit, which statement would best predict the effects? a. The real...

If a government increases its budget deficit, which statement would best predict the effects?

a. The real exchange rate and domestic investment rise.

b. The real exchange rate and domestic investment fall.

c. The real exchange rate rises, and domestic investment falls.

d. The real exchange rate falls, and domestic investment rises.

35. If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change?

a. The money supply increases, and aggregate demand shifts right.

b. The money supply increases, and aggregate demand shifts left.

c. The money supply decreases, and aggregate demand shifts right.

d. The money supply decreases, and aggregate demand shifts left.

36. What is the effect of an increase in the Canadian real interest rate above the world interest rate?

a. Canadians buy more foreign assets, which increases Canadian net capital outflow.

b. Canadians buy more foreign assets, which reduces Canadian net capital outflow.

c. Foreigners buy more Canadian assets, which reduces Canadian net capital outflow.

d. Foreigners buy more Canadian assets, which increases Canadian net capital outflow.

37. What happens when the dollar appreciates?

a. Net exports increase, and aggregate demand shifts right.

b. Net exports increase, and aggregate demand shifts left.

c. Net exports decrease, and aggregate demand shifts right.

d. Net exports decrease, and aggregate demand shifts left.

Solutions

Expert Solution

Ans.1- (C)

The real exchange rate rises, and domestic investment falls.

Ans.2- (A)

Open market purchases increases the money supply which shifts the AD curve to the right

Ans.3- (C)

Since canadian interest rate exceeds the world interest rate foreigners will buy more canadian assets to earn a higher return. So, capital inflows increases capital outflow decreases. Hence there is a reduction in canadian net capital outflow.

Ans.4- (D)

When dollar appreciates US good become more costly so exports of US fall. Foreign goods become cheaper for US residents so imports increases. As a result, net exports fall which shifts AD to the left.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Effects of a government budget deficit

3. Effects of a government budget deficitConsider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget.Screen Shot 2020-10-09 at 3.24.05 PM.pngGiven the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use...

Effects of a government budget deficit Consider a hypothetical open economy.

Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget.Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol)...

Suppose that the government budget deficit increases. Show, what curves in the open-economy macroeconomic model would...

Suppose that the government budget deficit increases. Show, what curves in the open-economy macroeconomic model would shift? What are the effects of this event on the economic variables like real interest rate, net capital outflow, and real exchange rate?

What is the effect of a government budget deficit on a) real interest rate and b)...

What is the effect of a government budget deficit on a) real interest rate and b) real exchange rate. Use the market for laonable funds and the market for foreign currency exchange in your answer. What are the negative effects of current US federal budget deficit? What are the positive effects? Argue.

Take the expectations into account and discuss the effects of a budget deficit reduction. Would a...

Take the expectations into account and discuss the effects of a budget deficit reduction. Would a deficit reduction be meaningful in case of an oil shock? Discuss.

1. If the government sells U.S. Treasury bonds to finance its budget deficit, one would expect:...

1. If the government sells U.S. Treasury bonds to finance its budget deficit, one would expect: A. interest rates to rise. B. domestic investment to rise. C. tax rates to fall. D. inflation to rise. E. interest rates to fall. Suppose the real interest rate in the economy is 3% and the nominal interest rate is 6%, what is the current inflation rate? a. 18% b. 9% c. 2% d. 3% e. 2.5% Which of the following actions of the...

(a) What effects would an increase in government deficit have on the price of securities? (b)...

(a) What effects would an increase in government deficit have on the price of securities? (b) What effect would a decrease in the money supply have on the price of securities? Draw the appropriate graphs and explain.

Question 8 (a) What effects would an increase in government deficit have on the price of...

Question 8 (a) What effects would an increase in government deficit have on the price of securities? (b) What effect would a decrease in the money supply have on the price of securities? Draw the appropriate graphs and explain.

When the government runs a budget deficit,

When the government runs a budget deficit,a. national saving is higher than it would be if the budget were balanced.b. investment is lower than it would be if the budget were balanced.c. interest rates are lower than they would be if the budget were balanced.d. All of the above are correct.e. None of the above is correct.

3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents...

3. Effects of a government budget deficitConsider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget.On the following graph, plot the relationship between the real interest rate and net capital outflow by using the green points (triangle symbol) to plot the points...

Subjects