Compare and contrast the Mundell-Fleming model with the monetary model of exchange rate determination, emphasising the crucial role of demand management policies in one of the set-ups and of supply-side effects in the other.
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Compare and contrast the Mundell-Fleming model with the monetary model of exchange rate determination, emphasising the crucial role of demand management policies in one of the set-ups and of supply-side effects in the other.
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- Explain and show the effect of restrictive monetary policy on output under flexible exchangerates and perfect capital mobility by using the IS-LM model.Explain how the results of monetary policy will change when price and wage variability are included in the fixed price Mundell-Fleming model in the example of a floating exchange rate regime (perfect capital mobility).The transmission mechanism for contractionary monetary policy implies that: a. Australian financial assets will become more attractive to the rest of the world, increasing the supply for Australian dollars in the exchange rate market, which leads to a depreciation of its exchange rate that in turn increases net exports. b. Australian financial assets will become more attractive to the rest of the world, increasing the demand for Australian dollars in the exchange rate market, which leads to an appreciation of its exchange rate that in turn decreases net exports. c. Australian financial assets will become more attractive to the rest of the world, decreasing the supply of Australian dollars in the exchange rate market, which leads to an appreciation of its exchange rate that in turn decreases net exports. d. Australian financial assets will become more attractive to the rest of the world, increasing the demand for Australian dollars in the exchange rate market, which…
- Use the Mundell-Fleming model to explain the effect of restrictive monetary policy with floating exchange rates under perfect capital mobilityOutlining a revision to the Bank's monetary policy framework to explicitly incorporate exchange rate stabilization as a policy objective.Describe the tools used by the Central Bank to implement Monetary Policy.
- Assess the validity of the following statement: A monetary shock leads to exchange rate overshooting.The suitable expansionary monetary policy to address economic recession is: Lower income and business tax Higher interest rate Quantitative Easing Lower import tariffWhat are the key advantages of exchange-rate targetingas a monetary policy strategy?
- A tight monetary policy that involves high interest rates may lead to a number of related problems. Which of the following is not likely to be a consequence of such a policy? Select one: A. Higher cost for producers B. Cost-push inflationary pressures C. Increased costs for government D. Reduced investmentUsing the Mundell-Fleming model, explain whether you think a country should pursue an expansionary monetary policyWhen investors worldwide become more willing to substitute their domestic assets for US assets (flight to safety), the US net capital outflow function and the IS curve become flatter. Under those assumptions, one can predict that monetary policy becomes relatively ____________ effective than fiscal policy to change economic output and employment in the short run. One can also predict that a monetary contraction would cause the US dollar to ____________. a. less; depreciate b. more; appreciate c. more; depreciate d. less; appreciate