Question
In: Economics
Initially, there is a trade surplus in an open economy with a perfect capital mobility and...
Initially, there is a trade surplus in an open economy with a perfect capital mobility and a world interest rate rw. Suppose the government reduces her expenditure. How does the reduction in the government expenditure affect net capital outflow, exchange rate, and net exports? Answer with the aid of the supply-and-demand diagram for the foreign-currency exchange market.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
For an open economy with perfect capital mobility, when net capital outflow is measured along the...
For an open economy with perfect capital mobility, when net
capital outflow is measured along the horizontal axis and the real
interest rate is measured along the vertical axis, net capital
outflow is drawn as a:
horizontal line at the world real interest rate.
line that slopes down and to the right.
vertical line at 0.
line that slopes up and to the right.
Please explain, thank you,
Consider the long-run model of a small open economy with perfect capital mobility.
Consider the long-run model of a small open
economy with perfect capital mobility. Starting from an initial
equilibrium with balanced trade, illustrate graphically and explain
verbally how the following (ceteris paribus) events affect saving,
investment, and the trade balance in this economy.a. The domestic government implements a reduction in government
purchases.
Consider the case of a small open economy with a fixed exchange rate, perfect capital mobility...
Consider the case of a small open economy with a fixed exchange
rate, perfect capital mobility (i.e., interest parity holds), and
complete price stability (no ongoing inflation). Explain what
effect a decrease in the world interest rate would have on the
following domestic macroeconomic variables:
a. The stock of foreign exchange reserves. b. The money
supply.
c. Real GDP.
d. The price level.
e. The real exchange rate.
UK is small open economy with a flexible exchange rate regime and perfect capital mobility. Suppose...
UK is small open economy with a flexible exchange rate regime
and perfect capital mobility. Suppose that the consumption function
shifts down, due perhaps to a worsening of consumer confidence.
That is, for every level of disposable income, consumers want to
consume less. Explain the direction of the effect of this change on
output, consumption, investment, interest rate, net exports and
exchange rate.
UK is small open economy with a flexible exchange rate regime and perfect capital mobility. Suppose...
UK is small open economy with a flexible exchange rate regime
and perfect capital mobility.
Suppose that the consumption function shifts down, due perhaps to a
worsening of consumer confidence. That is, for every level of
disposable income, consumers want to consume less. Explain the
direction of the effect of this change on output, consumption,
investment, interest rate, net exports and exchange rate.
Consider the long-run model of a small open economy with perfect capital mobility. Starting from an...
Consider the long-run model of a small open economy with perfect
capital mobility. Starting from an initial equilibrium with
balanced trade, illustrate graphically and explain verbally how the
following (ceteris paribus) events affect saving, investment, and
the trade balance in this economy.
1. Foreign governments decide to raise their taxes, causing a
change in the world real interest rate
a. Consider a small open economy with perfect capital mobility under the Mundell- Fleming framework. Discuss...
a. Consider a small open economy with perfect capital mobility
under the Mundell- Fleming framework. Discuss the effectiveness of
monetary and fiscal policy under different exchange rate
regimes.
b. Briefly explain some of the shortcomings of the
Mundell-Fleming model..
Please provide a full answer.
an income tax cut in a large open economy with a trade surplus decrrase capital outflows....
an
income tax cut in a large open economy with a trade surplus
decrrase capital outflows.
true or false
16. In an open economy, if a country has a trade surplus, which is NOT correct...
16. In an open economy, if a country has a trade surplus, which
is NOT correct ____?
A. Exports > Imports.
B. Y < C + I + G
C. Saving > Investment
D. Net capital outflow > 0
Fixed exchange rates and monetary policy Consider a group of open economies with perfect capital mobility...
Fixed exchange rates and monetary policy
Consider a group of open economies with perfect capital mobility
among them.
a) Assume that there is a Leader country. All other countries
(referred to as the Follower countries) fix their exchange rates to
the Leader country. Discuss the effectiveness of monetary policy in
the Follower countries.
(b) If the Leader country reduces its money supply to fight
inflation, what must the Follower countries do to enforce their
fixed exchange rates? What is the...
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