Question

In: Economics

1) Consider tight fiscal policy done in a large open economy. As a result, world real...

1) Consider tight fiscal policy done in a large open economy.

As a result, world real interest rates will _______ and the real exchange rate will ________.

A. rise; rise

B. fall; fall

C. rise; fall

D. fall; rise

2) In order to use the Solow growth model as we've been doing in this unit, putting production functions in per-worker terms, when all inputs used in production are increased by 10%, output must

A. remain constant

B. increase by 10% or more

C. increase overall but remain constant in per-worker terms

D. increase by exactly 10%

Expert Solution

1) Consider tight fiscal policy done in a large open economy.

As a result, world real interest rates will _______ and the real exchange rate will ________.

A. rise; rise

B. fall; fall

C. rise; fall

D. fall; rise

Correct answer is : Option A. When tight (contractionary) monetary policy is followed then interest rates go up and foreign investments are attracted more, it leads to higher demand for currency and it leads to appreciation of currency.

2) In order to use the Solow growth model as we've been doing in this unit, putting production functions in per-worker terms, when all inputs used in production are increased by 10%, output must

A. remain constant

B. increase by 10% or more

C. increase overall but remain constant in per-worker terms

D. increase by exactly 10%

Correct option is B. Solow model is based on constant returns to scale. It means that input change will lead to same proportionate change in output.

Rahul Sunny answered 1 hour ago

Consider the determination of real exchange rates in a large open economy with a flexible exchange...

Consider the determination of real exchange rates in a large open economy with a flexible exchange rate regime. If today’s technology increase, e* will (increase/decrease/stay/none). If tomorrow’s technology is expected to improve, e* will (increase/decrease/stay/none) . If M decreases, e* will (increase/decrease/stay/none). If the government decreases G1 while keeps G2 unchanged, e* will (increase/decrease/stay/none),

In looking at Real World Fiscal Policy, one might want to consider the timing, or lag,...

In looking at Real World Fiscal Policy, one might want to consider the timing, or lag, or speed at which a policy can go into effect. How do the Tax cuts of 2001,2003, and the 2020 policies stack up when looking at timing issues?

Consider the short-run impact of the U.S. fiscal policy action on Bermuda, a small open economy...

Consider the short-run impact of the U.S. fiscal policy action on Bermuda, a small open economy that maintains a fixed exchange rate with the U.S. dollar. What is the impact of the U.S. fiscal policy action on consumption, investment, and the unemployment rate in Bermuda? Explain.

Explain the effects of fiscal policy on output and employment in an open economy with fixed...

Explain the effects of fiscal policy on output and employment in an open economy with fixed exchange rates.

Question Set 6: Effectiveness of Monetary and Fiscal Policy in an Open Economy Respond to and...

Question Set 6: Effectiveness of Monetary and Fiscal Policy in an Open Economy Respond to and answer the following prompts and questions: Why does monetary policy have a greater effect on aggregate demand in an open economy than in a closed economy? Why does fiscal policy have a smaller effect on aggregate demand in an open economy than in a closed economy? Assume our macroeconomic goals now include price level stability, full employment, economic growth, and exchange rate stability. Assume...

7. a) In a large open economy as the US, how would expansionary fiscal and ease...

7. a) In a large open economy as the US, how would expansionary fiscal and ease money policies affect the interest and GDP ? Use the IS-LM curves in a large open economy to demonstrate it. b) based on your answers, how would it affect net capital flows and the resultant exchange rates in the model? c) The Reagan tax cut in the 1980’s did not affect the dollar exchange rate did not as the model predicts. Why...

1) Consider a small open economy that initially starts in balanced trade. Another, "large" economy does...

1) Consider a small open economy that initially starts in balanced trade. Another, "large" economy does tight fiscal policy. As a result, the world real interest rate will _______ and the small open economy will experience a trade ______. a. increase; deficit b. decrease; deficit c. decrease; surplus d. increase; surplus 2) In economics, "domestic" means a. international b. American c. in autarky (not trading) d. actively trading

Consider a large open domestic economy with a financial account surplus.

Consider a large open domestic economy with a financial account surplus.i. Draw a diagram showing this situation (Your answer should include two graphs, one for the domestic economy and one for the foreign economy). Note: Draw the two graphs side by side and clearly indicate the world interest rate as a single line going through both graphs.ii. What are the effects, in equilibrium, on the world real interest rate, domestic national saving, domestic investment, the domestic current account balance, foreign national saving, foreign...

In a large open economy, an investment tax credit raises the real interest rate, ______ the...

In a large open economy, an investment tax credit raises the real interest rate, ______ the trade balance, and ______ net capital outflow. a. decreases; decreases b. increases; increases c. decreases; increases d. increases; decreases Assume that a war breaks out abroad, and foreign investors choose to invest more in a large safe country, the United States. Then, the U.S. real interest rate: a. and net exports will both fall. b. will fall and net exports will rise. c. will...

Consider the following open economy (Home economy). The real exchange rate is fixed and equal to...

Consider the following open economy (Home economy). The real exchange rate is fixed and equal to one. Saving, investment, government spending, taxes, imports and exports are given by: S = -60 + 0.18Y I = I G = G T = T0 + 0.1Y Q = 0.1Y X = 0.1Y* where T0 is the level of autonomous taxes, and an asterisk is used to designate variables related to the foreign economy. Assume Foreign economy has the same equations as Home...