A country has a fixed exchange rate and capital is very mobile.  Because it is experiencing high unemployment, the central bank increases the money supply.  Using symbols and words, explain what will happen to (a) internal balance; (b) external balance; (c) the country’s exchange rate.    How must the central bank respond if it wishes to maintain the fixed exchange rate?  Why is monetary policy said to be ineffective with fixed exchange rates and capital mobility?

Q: Other things the same, as the price level falls, a country’s exchange rate   and interest rates…

A: Price level of certain goods and services demanded in the economy effects the various parameters…

Q: use illustrative diagrams to explain the effects of a monetary contraction on output, composition of…

A: Effect of Monetary contraction on exchange rate:  where D= demand for foreign currency…

Q: Suppose that two small open economies, Fixed and Flex, can be described by the Mundell-Fleming…

A: A macroeconomic model is the Mundell–Fleming model. It depicts the short-run relationship between an…

Q: Use the Mundell-Fleming model to graphically illustrate and predict what would happen to GDP, the…

A: When the demand for the currency rises, the price of the currency rises and the currency…

Q: A country with fixed exchange rate can always raise its policy interest rate to curb down…

A: Exchange rate:- Exchange rates between different currencies indicate how strong one currency is…

Q: Assume that there are substantial capital flows among Country A, Country B and Country C. How will a…

A: Interest rates: The interest rate is the amount charged by a lender to a borrower on top of the…

Q: What are the goals of monetary policy? What are the monetary policy targets? Which target is…

A: Hi. Since there are multiple questions we will answer the first three questions.

Q: In the context of the monetary approach to the determination of the exchange rate, what is the…

A: Exchange rate - The exchange tells us about the worth of the currency of one country in comparison…

Q: Many developing countries, like Mexico, have moderate to high rates of inflation. At the same time,…

A: There is high inflation in many developed countries, such as México. As inflation is high currency…

Q: What is the impact of each of the following changes (other variables remaining unchanged) on the…

A: “Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: Question 2 In the context of the monetary approach to the determination of the exchange rate, what…

A: "Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: In the context of the monetary approach to the determination of the exchange rate, what is the…

A: A money supply curve is the supply of currency in an economy. The supply of money depends upon the…

Q: In the context of the monetary approach to the determination of the exchange rate, what is the…

A: In Democratic government generally, it has been seen that there is both public and private sector…

Q: An economy is described by the following two equations.       Y = C (Y – T) + I (r* ) + G –…

A: Y = C (Y – T) + I (r* ) + G – NX(e) The above model depicts the aggregate demand in an economy. It…

Q: What of the following is not among the advantages of adopting a flexible exchange rate regime?…

A: Countries holding large reserves acts as negative factor affecting the country's exchange rate. In a…

Q: In an economy with a flexible exchange rate, an expansion in the nominal stock of money leads to the…

A: In an economy with a flexible exchange rate, an increase in the money supply will have an effect on…

Q: multiple choice question and short explanation about your answer Suppose you are wanted to make…

A: IS-LM  In the IS LM curves of equilibrium, (IS) is the goods market and (LM) is the money market.…

Q: Suppose that a country with pegged exchange rate has reserves of $8 billion and is running a deficit…

A: Given Foreign exchange reserves = 8 Billion $ Current account deficit = 1 Billion per month…

Q: In the context of the monetary approach to the determination of the exchange rate, what is the…

A: The monetary approach with respect to the exchange rate needs, in the flexible should focus on the…

Q: If the central bank were to increase the money supply in a fixed exchange rate regime, what impacts…

A: Fixed exchange-rate system is an economic system in which the currency is kept fixed i.e. it is not…

Q: Suppose that the Fed implements an expansionary monetary policy under the fixed exchange rate…

A: Fiscal and monetary strategies are the essential instruments legislatures use to direct the…

Q: Given that the country has a floating exchange rate regime, what are the consequences of a policy…

A: As a result of expansionary monetary policy, the LM shifts rightwards and the output and interest…

Q: Consider the case of a fixed exchange rate system as held in Europe before the Euro. All countries…

A: When the country fixes its exchange rate with foreign economy like Germany, then the domestic…

Q: Consider an economy with a fixed exchange rate system. Which of the following will result in an…

A: C BOTH OF THE ABOVE A fixed exchange rate is refer to the fixed regime and providing the applied…

Q: The autonomous region of Catalonia has recently declared independence from Spain, and is looking for…

A: Answer -

Q: About Capital mobility assuming κ>h on flexible Exchange rates, Show the effects of contractionary…

A: Flexible exchange rate system: The exchange rate under this is determined by the market forces of…

Q: Under a flexible exchange rate regime, if a foreign trading partner goes into recession  a. the…

A: A floating exchange rate is a regime where the currency price of a nation is set by the foreign…

Q: The Policy Trilemma states that a country or a monetary union cannot pursue the following three…

A: The Policy Trilemma or Impossible trinity states that all the three goals cannot be met at the same…

Q: Explain how the exchange-rate transmission mechanism can strengthen the interest-rate transmission…

A: The Monetary Policy is defined as a policy which is used by the government to control a nations…

Q: How is it necessary for a nation with a fixed exchange rate and open financial markets to renounce…

A: The rate about which one currency will be swapped for another is known as the exchange rate. The…

Q: Empirical studies find that exchange rates are much more variable then   inflation differentials.…

A: The exchange rate refers to the relative value of a currency in terms of other foreign currencies.…

Q: What are the short-run and long-run determinants of exchange rates, under the condition of free…

A: The value attached to a particular nation's currency in comparison/relation with that of another…

Q: What happens when international financial capital is completely free to move in and out of countries…

A: The interaction between the countries will have a significant impact on the domestic trade and the…

Q: on a fixed exchange rate explain the effects of contractionary monetary policy by graph

A: Under perfect mobility, the BP curve is a horizontal line and the domestic interest rate equals the…

Q: Can you answer this question, please? Someone said that the correct answer is B, but I think it is…

A: Answer: Correct option: A (Raise interest rate) Explanation: If the central bank of a country raises…

Q: Explain why a country with fixed exchange rate and open financial markets has to give up its…

A: The theory that depicts that countries might tend to choose among options while making decisions…

Q: Discuss two models of exchange determination; one assuming fully flexible prices and one assuming…

A: Exchange rate determination- FLEXIBLE- Flexible or floating exchange rate is determined by market…

Unemployment and Cost of Unemployment

Unemployment is the state of being unemployed, even when an individual is actively seeking work opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed.