Define overvalued exchange rate.

Q: Under a fixed exchange rate regime, a tax increase will in the short run:cause a reduction in ouput,…

A: Fixed exchange rate refers to the system in which the value of one currency with respect to another…

Q: Evaluate the effect of the contractionary monetary policy on a)real exchange rate  b)expected real…

A: A contractionary strategy is one that reduces the amount of money available in the economy. During a…

Q: Suppose for Home: Ms=1284, Md/P=8521-83465*R, P=3 Suppose for Foreign: Ms=2257, Md/P=5910-28382*R,…

A: Given; For home:- MS=1284MdP=8521-83465RP=3 For foreign:- MS=2257MdP=5910-28382RP=3

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: Which factors are the main determinants of real exchange rate? Explain with details how changes in…

A: International terms of trade shocks, government expenditure patterns, trade restrictions, net…

Q: Changes in which of the following will cause a change in exchange​ rates?   A. consumer preferences…

A: Exchange rates is defined as the rate at which one currency is traded for another. So, there can be…

Q: In the Mundell-Flemming model with floating exchange rates, explain what happens to aggregate…

A: Mundell-Flemming model is nothing but an extension of the IS-LM model which explains the working of…

Q: Explain the exchange rate overshooting with the help of the diagrams that you drew for part a. Why…

A: Exchange rate overshooting is more volatile in short run as there is an excessive movement in…

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: Using examples, demonstrate how exchange rate forecasting is approached?

A: The exchange rate of a country is the price of one currency in terms of another. It is used when the…

Q: Explain with the aid of a model graph, describe the effect of changes in domestic and foreign…

A: With the increment in the rate of interest, there will be less demand for loans, and similarly, when…

Q: A rise in the domestic interest rate leads to capital inflows, which make the exchange rate…

A: A rise in domestic interest rate signifies a higher return from investment. That incentivises…

Q: If one country has higher inflation than another, its exchange rate should depreciate. True False

A: Inflation Rate affects the exchange rate. If the inflation rate is higher in one country as compared…

Q: Elaborate on what is the Purchasing Power Parity theory, clearly indicating the argument it is based…

A: The buying power of a currency refers to the number of things or services that one unit of currency…

Q: What is the main role of the IMF? Group of answer choices To ensure a stable exchange rate regime

A: The International Monetary Fund ( in short IMF) attempts to accomplish supportable development and…

Q: What will happen if exchange rate fluctuate? (please do not copy answers on the internet, thank you)

A: Exchange rate: The value of one country's currency in relation to the currency of another country or…

Q: Discuss the pros and cons of having a fixed exchange rate regime using your own words.

A: Fixed exchange rate is the system imposed by central bank or government that bind the official…

Q: Under the fixed exchange rate regime, please explain in your own words and dra graphs for the…

A: Fixed exchange rate regime is that approach to exchange rate determination used by central banks…

Q: Define the term “Exchange rate volatility

A: Exchange rate is known as the rate at which the currency of one country is exchanged for the…

Q: Explain how the flexible exchange rate may be use to correct disequilibrium within an economy.

A: A flexible exchange rate system is a system in which the value of the exchange rate is determined by…

Q: Discuss what the interest rate parity (IRP) tells us about forecasting future spot exchange rates.

A: Interest rate parity (IRP) refers to the theory according to which the interest rate differential…

Q: If the monetary authority contracts money supply and the fiscal authority raises taxes, then in a…

A: When the central bank contracts the money supply with raising the interest rates, it makes the…

Q: In the Mundell–Fleming model with floating exchange rates, explain what happens to aggregate income,…

A: Mudell - Fleming model - This model is extension of IS-LM model . This model evaluate IS-LM model in…

Q: Absolute PPP does not do a very good job explaining exchange rate behaviour in the short run. Give…

A: PPP stands for Purchasing Power Parity which is a method used by analysts to compare the currencies…

Q: This chapter explains that with a flexible exchange rate, expansionary monetary policy reduces the…

A: A flexible exchange rate is one where the value of the currency in terms of another is allowed to…

Q: Y = C (Y – T) + I (r* ) + G – NX(e) M/P = L(r*, Y) a) If the taxes are raised in this economy, and…

A: The fiscal policy would result in the change in the policies which includes taxes, government…

Q: Define overvalued exchange rates. Discuss four ways in which governments policymaker can respond to…

A: An exchange rate between two currencies is the rate at which one currency is traded for another. The…

Q: Under a flexible exchange rate system a decrease in the vue of a domestic currency in terms of…

A: Decrease in value of domestic currency in terms of foreign currency is referred to as currency…

Q: Why is the exchange rate overshooting an important phenomenon? What does it help to explain?

A: With given prices a monetary expansion under flexible rates and perfect capital mobility leads to…

Q: What are demand-related factors and supply-related factors, that may influence exchange rate…

A: The economics of supply and demand indicates that if demand is greater, prices increases and the…

Q: What is the Purchasing Power Parity theory, clearly indicating the argument it is based on, its…

A: The amount of products or services that one unit of currency can buy is known as its buying power.…

Q: ch one iS king or (a) Fixed exchange rate (b) Flexible exchange rate c) Both (a) and (b) d) None of…

A: According to the given question the king of the exchange rate is the OPTION(C) IS THE CORRECT ANSWER…

Q: Can we directly extend the domestic CAPM to the international CAPM without considering the use of…

A: Answer The Capital plus valuation Model calculates the particular quantity of stocks and compares…

Q: Suppose a small open economy country is in a period of economic recession, but the country has…

A: The IS curve represents the negative relationship between interest rate and real GDP where goods…

Q: If the nominal exchange rate rises 5%,domestic inflation is 2% and foreign inflation is 3%,what is…

A: Nominal exchange rate refers to the rate at which a person can trade the currency of one country for…

Q: otherwise downvote switches from a flexible exchange rate regime to a fixed exchange rate regime,…

A: The monetary policy is not an effective when a country follow the fixed exchange rate system.  The…

Q: How does a country’s decision to fix its exchange rate to that of another nationshape the conduct of…

A: The fixed exchange rate/pegged exchange rate is the regime in which the worth of the exchange rate…

Q: Assuming a flexible/floating exchange rate system, what would be the impact on the exchange rate (£)…

A: The exchange rate is the value of one currency in terms of another currency. Under a flexible…

Q: Display graphically and explain an exchange rate overshooting

A: Exchange rate overshooting refers to the model in which foreign exchange rate overreact temporarily…