describe short run and long run effects on US interest rate, US/EU Exchange rate and US price level if there is a temporary increase in US Money supply
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describe short run and long run effects on US interest rate, US/EU Exchange rate and US
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- Question 4Use the money market and FX diagrams to answer the following questions about the relationshipbetween the British pound and the U.S. dollar. The exchange rate is in U.S. dollars per Britishpound, E$/pound. We want to consider how a change in the U.S. money supply affects interestrates and exchange rates. On all graphs, label the initial equilibrium point A.(a) Illustrate how a temporary increase in the U.S. money supply affects the money and FXmarkets. Label your short-run equilibrium point B and your long-run equilibrium point C.(b) Using your diagram from (a), state how each of the following variables changes in theshort run (increase/decrease/no change): U.S. interest rate, British interest rate, E$/pound,Ee$/pound, and the U.S. price level P.(c) Using your diagram from (a), state how each of the following variables changes in thelong run (increase/decrease/no change relative to their initial values at point A): U.S. interestrate, British interest rate, E$/pound, Ee$/pound,…The following report appeared in the New York Times on August 7, 1989 ("Dollar's Strength a Surprise," p. D1): But now the sentiment is that the economy is heading for a "soft landing," with the economy slowing significantly and inflation subsiding, but without a recession. This outlook is good for the dollar for two reasons. A soft landing is not as disruptive as a recession, so the foreign investments that support the dollar are more likely to continue. Also, a soft landing would not force the Federal Reserve to push interest rates sharply lower to stimulate growth. Falling interest rates can put downward pressure on the dollar because they make investments in dollar-denominated securities less attractive to foreigners, prompting the selling of dollars. In addition, the optimism sparked by the expectation of a soft landing can even offset some of the pressure on the dollar from lower interest rates. a. Show how you would interpret the third paragraph of this report using the…Kindly note I need all answers It will gives you upvote QUESTION 13 For the following questions assume that the Fed is committed to price level stability. Initially, the exchange rate is 1.0. The US interest rate starts at 0.15 and the Fed increases the money supply by twenty percent (0.2) reducing the interest rate to 0.01. Assume that the economy completely adjusts after two years. Two years from now, the exchange rate is. 1.2 0.80 1.0 1.10 QUESTION 14 What is the change in the price level over the next two years 0.20 0.10 0.0 -0.10 QUESTION 15 Starting from today, what is the change in the interest rate over the next two years -0.10 0.00…
- (a) There are two countries in the world, Australia and Japan. Suppose that the central bank of Australia lowers the real interest rate, while the central bank of Japan raises the real interest rate. In this case, the nominal exchange rate (Yen/Dollar) increases. Answer true or false. Please briefly explain your answer. (b) Argentina is an open economy. Suppose that Argentina fixes the value of their currency to US dollars. If Argentina experiences hyperinflation, it can stabilize inflation by using its monetary policy freely. Answer true or false. Please briefly explain your answer.Explain how permanent shifts in national real money demand functions affect real and nominal exchange rates in the long run.Now suppose that U.S income rises. As a result, Canada’s exports to US increase. What happens to the position of AD curve in the output market in Canada (use only the aggregate demand curve on the graph, not AS) if Bank of Canada allows the exchange rate to be flexible. Clearly explain what happens in the foreign exchange market and money market as well.
- COURSE: MACROECONOMIC - MUNDELL-FLEMING MODEL Until mid-2005, the Central Bank of China established a fixed exchange rate between its currency (yuan) and the dollar. The fixed exchange rate regime was reintroduced during the Great Recession between July 2008 and June 2010.After that date, the Chinese central bank established fluctuation bands for the yuan allowing it to move within these bands. However, the US has accused China on several occasions of taking actions to devalue its currency against the dollar.EXPLAIN and GRAPH with an open economy model with a fixed exchange rate (MUNDELL-FLEMING MODEL) the different chain effects that are generated when a country devalues its currency. From your results DETERMINE why it would be convenient for China to devalue its currency with respect to the dollar and in what way USA is harmed. Hint: according with statement on first paragrah, explain what's happens if devaluation process is defined and by Mundell-Fleming Model explain differents…Consider the short-run effect of a decrease in US money demand on interest rates and exchange rates? Draw a Graph Consider the short-run effect of a decrease in domestic real Gross National Product (GNP) on interest rates and exchange rates. Draw a GraphAssume the Federal Reserve believes that the dollar should be weakened against the Mexican peso. Explain how the Fed could use direct and indirect intervention to weaken the dollar’s value with respect to the peso. Assume that future inflation in the United States is expected to be low, regardless of the Fed’s actions.
- Suppose there are two countries in the world, Mexico and the United States. The currency of Mexico is the peso, the currency of the United States is the dollar. On the foreign exchange market, the supply of dollars comes from Oa the demand for pesos Ob. the supply of pesos Oc the demand for dollars O d. There is not enough information given to answerThe following diagram shows relationships between exchange rate E and interest rate R (first quadrant, top right); between price level P and exchange rate E (second quadrant; top left); between real money M/P and price level P (third quadrant, bottom left); and between interest rate R and real money M/P (fourth quadrant, bottom right). A. Copy the diagram. Then illustrate and explain in the diagram how an interest rate increase in the money market and foreign exchange market model affects the exchange rate in the short run. (Indicate, if one or more quadrants are not required for explaining the mechanisms.) B. What could be the reason for an interest rate increase in the money market and foreign exchange market model? Explain in the diagram used for part a of the question. C. Assume now the interest rate increase was actually caused by the reason you mentioned in part b of the question. Explain its effect in the long run? You may use the diagram from part a or draw a new diagram if…Use the money market and FX diagrams to answer the following questions. This question considers the relationship between the Indian rupee (Rs) and the U.S. dollar ($). The exchange rate is in rupees per dollar, ERs/$. On all graphs, label the initial equilibrium point A. a. Illustrate how a permanent increase in India’s money supply affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. b. By plotting them on a chart with time on the horizontal axis, illustrate how each of the following variables changes over time (for India): nominal money supply MIN, price level PIN, real money supply MIN/PIN, interest rate iRs, and the exchange rate ERs/$. c. Using your previous analysis, state how each of the following variables changes in the short run (increase/decrease/no change): India’s interest rate iRs, ERs/$, expected exchange rate EeRs/$, and price level PIN. d. Using your previous analysis, state how each of the…
