After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign- currency exchange market. Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to show the supply curve after the budget deficit. Market for Foreign-Currency Exchange 10 Initial Supply ?
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- Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loanable funds market in the United States, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States?Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loanable funds market in the United States, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States? (e) Based on your answer to part (d), what will happen to the international value of the dollar in the foreign exchange market? Explain. (f) Based on your answer to part (e), will the Federal Reserve buy or sell yen in the foreign exchange market to stabilize the dollar/yen exchange rate? Explain.Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loanable funds market in the United States, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States? (e) Based on your answer to part (d), what will happen to the international value of the dollar in the foreign exchange market? Explain. (f) Based on your answer to part (e), will the Federal Reserve buy or sell yen in the foreign exchange market to stabilize the dollar/yen exchange rate? Explain. ONLY ANSWER TO F
- Dear Sir/Madam while studying for my macroeconomics course, I came across this case study that I am struggling with right now. Thank you for your help. Assume the economy is open to capital inflows and outflows and therefore net capital inflow equals imports (IM) minus exports (X). Calculate each of the following. a) X = $125 million IM = $80 million Budget balance = - $200 million I = $350 million Calculate private savings. b) X = $85 million IM = $135 million Budget balance = $100 million Private savings = $250 million Calculate I. c) X = $60 million IM = $95 million Private savings = $325 million I = $300 million Calculate the budget balance. d) Private savings = $325 million I = $400 million Budget balance = $10 million Calculate IM – X.Consider a period in which stock prices are very high, such that investors begin to think that stocks are overvalued, and their valuations are very uncertain. If investors decide to move their money into much safer investments, would this affect general interest rate levels? In your answer, use the loanable fund's framework to explain how the supply of or demand for loanable funds would be affected by the investor actions and how this force would affect interest ratesRead the following premise carefully and answer the questions specifically and in detail: "Financial institutions such as banks, mortgage companies and finance companies serve as intermediaries between those who have a surplus versus those who have a deficit creating a capital injection market." Using the concepts of real interest rate and expected rate of return, he contrasts the relationship between savings and capital investment. Using the macroeconomic theory presented in the module content, he explains the relationship of the financial market with the economic growth of a country. Explain the dynamics that are expected to occur between different development policies in the injection of capital as instruments to promote growth, sustainability and economic stability of a country.
- The economy of Dream Island, which is isolated from the rest of the world, has the supply of loanable funds schedule and the demand for loanable funds schedule shown in the table below. As it happens, all of the supplies of loanable funds are from households' savings and the entre demand for loanable funds is from firms' investment demand. Real interest rate (percent per year) Supply of loanable funds (2005 dollars) Demand for loanable funds (2005 dollars) 5 2,000 5,000 7 3,000 4,000 9 4,000 3,000 11 5,000 2,000 a) Draw the demand and supply curves.Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects: Student Return (Percent) Carlos 4 Felix 7 Janet 15 Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project. Complete the following table with how much each student will have a year later when the project pays its return. Student Money a Year Later (Dollars) Carlos Felix Janet Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate rr. A student would choose to be a lender in this market if his or her expected rate of return is than rr. Suppose the interest rate is 6 percent. Among these three students, the quantity of loanable funds supplied would be ,…Explain how the following transactions would affectU.S. net capital outflow. For each transaction, statewhether it represents direct investment or portfolioinvestment.a. An American cellular phone company establishesan office in the Czech Republic.b. Harrods of London sells stock to the GeneralMotors pension fund.c. Honda expands its factory in Marysville, Ohio.d. A Fidelity mutual fund sells its Volkswagen stockto a French investor.
- Suppose that the government creates a disincentive for private saving by increasing the tax that people pay on income from holding stocks and bonds. Construct a well-labeled diagram that depicts the effect of the policy change on the real interest rate and the equilibrium quantity of investment.For each of the following pairs, which bond wouldyou expect to pay a higher interest rate? Explain.a. a bond of the U.S. government or a bond of anEastern European governmentb. a bond that repays the principal in year 2020 or abond that repays the principal in year 2040c. a bond from Coca-Cola or a bond from a softwarecompany you run in your garaged. a bond issued by the federal government or abond issued by New York StateAssume the following model of a closed economy: Y = C + I + G C = 120 + .5(Y – T) I = 100 – 10r G = 75 T = 50 (M/P)d = Y – 30r Ms = 700 P = 2 Derive the equation for the IS curve, showing Y as a function of r alone. Derive the equation for the LM curve, showing Y as a function of r alone. Graph both the IS and the LM curves. What are the equilibrium level of income and equilibrium interest rate? (Y = 584, r = 7.8)