Consider the following information about a small open economy: Y=1000; C=100+.75(Y-T); I=100-5r; G=100; T=100; NX=250-16E; r*=4. Find the equilibrium real exchange rate.
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Consider the following information about a small open economy:
Y=1000;
C=100+.75(Y-T);
I=100-5r;
G=100;
T=100;
NX=250-16E;
r*=4.
Find the equilibrium real exchange rate.
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Solved in 2 steps
- which of the following is an assumption of the monetary approach to the exchange rates? A - PPP Holds B - UIRP holds C - prices are flexible D - All of the above E - Only A and C of the aboveIn the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following results from a higher real exchange rate? a. It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars supplied. b. It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars supplied. c. It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars demanded. d. It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars demanded.Macroeconomics. Explain how the exchange rate adjusts to a temporary decrease in the foreign interest rate, R*, holding output constant
- Let S be the USD/GBP exchange rate, P∗ be the pound cost of a consumption basket in the U.K., and P be the dollar cost of a consumption basket in the U.S. Using the units of S, P∗, and P, find the units of the real exchange rate, Q = S (P∗/P).In an open economy,a change in domestic net foreign asset depends on how much is saved, and on investment,which reduces the domestic net foreign asset. True or False.In the open-economy macroeconomic model, if investment demand increases, then the real interest rate will _____________________ and the real exchange rate will _________________. Group of answer choices increase, increase decrease, increase increase, decrease decrease, decrease
- Which of the following is a characteristic of a fixed exchange rate system? A. Exchange rates fluctuate freely in response to market forces B. Exchange rates are determined solely by government intervention C. Exchange rates are fixed and do not change D. Exchange rates are determined by supply and demand in foreign exchange marketsAn economy is described by the following two equations. Y = C (Y – T) + I (r* ) + G – NX(e) M/P = L(r*, Y) If the taxes are raised in this economy, and assuming a floating exchange rate regime; explain what happens to: i. Aggregate income,Let S be the USD/GBP exchange rate, P∗ be the pound cost of a consumption basket in the U.K., and P be the dollar cost of a consumption basket in the U.S. Using the units of S, P∗, and P, find the units of the real exchange rate, Q = SP∗/P
- In a large open economy, if households’ current income increases, then the real interest rate __________ and the equilibrium current account for this economy __________.In a large open economy, the IS curve has been given by Sd(r)-Id(r)=NX(e), where e is the real exchange rate that is positively related to the real interest rate r. Can you illustrate why the IS curve is downward sloping? That is, as Y increases, the real interest rate r is lower in equilibrium.Q27: In 2020, the exchange rate was ¥6.90=$1. Convert the China GDP of ¥101.6 trillion yuan in 2020 with the U.S. GDP of $20.94 trillion for the same year.
