Discuss two models of exchange determination, one assuming fully flexible prices and one assuming fixed prices. How does the moneary policy vary in the two models? Explain with graphs
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Discuss two models of exchange determination, one assuming fully flexible prices and one assuming fixed prices. How does the moneary policy vary in the two models? Explain with graphs
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- Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. If the supply curve for USD shifted from 100+en to 104+en bln dollars per week and the demand curve shifted from 140-en to 142-en bln dollars per week, then the exchange rate changed by _____ percentAssume that the expected future exchange rate is unchanged and that the central bank holds the real money supply fixed. Draw an IS-LM-IP diagram to show the effect of the drop in consumer confidence. Label all axes and curves and mark all the values and equilibrium points appropriately.Diagram a market in which the equilibrium dollar price of 1 unit of fictitious currency zee (Z) is $5 (the exchange rate is $5 = Z1). Then show on your diagram a decline in the demand for zee. a. Referring to your diagram, discuss the adjustment options the United States would have in maintaining the exchange rate at $5 = Z1 under a fixed-exchange-rate system. b. Suppose that the Fed’s FX reserves increase by 40 million zees as a result of the decline in demand. How many millions of dollars worth of bonds will the Fed have to sell in order to sterilize the accompanying increase in the domestic money supply?
- 1. a. All other things held equal, a higher value of the dollar (it takes more pesos to buy a dollar) will: Move you down along Demand Curve for Dollars. Move you up the Supply Curve for Dollars. Shift the Supply Curve for Dollars. Shift the Demand Curve for Dollars. b. The equilibrium exchange rate between the dollar and peso is: Determined primarily by the demand of Argentines for US goods. Determined primarily by the demand of US Citizens for Argentine goods. Determined by the interaction of both the above. Entirely random. c, In a hypothetical foreign exchange market where exchange rates are completely free to move in response to market forces, the equilibrium exchange rate of pesos to the dollar would be where; Argentina has a trade surplus with the US. Argentina has a trade deficit with the US. Trade between the US and Argentina is in balance (neither country has a trade deficit or…Suppose the interest parity condition holds. Also assume that the one-year interest rate in the United States is 6% and that the one-year interest rate in SA is 5%. What does this imply about the current versus future expected exchange rate (for the U.S. dollars and SA Rand)? Explain.identify the statement as True, False, or Uncertain, and explain your reasoning in detail. 1)Following the announcement that the amount of QE intervention by the central bank will be reduced going forward (also known as Quantitative Tightening), according to the UIP condition, an immediate appreciation of home’s nominal exchange rate would be observed. 2) The difference between the slopes of the IS and RX curves depends only on the sensitivity of net exports to the real exchange rate. 3) Consider a temporary positive inflation shock in a flexible exchange rate regime (with an inflation targeting central bank) and in a fixed exchange rate regime (where there is no policy intervention). Assume that both economies converge to a medium run equilibrium. Following the shock, inflation converges to its equilibrium value from above in both cases. 4)The central bank of a common currency area should not respond to a shock specific to one member. 5)Assume that workers supply effort…
- (a). Use the DD-AA model to examine the effects of an one-time rise in the foreign price level, P* given that the future exchange rate Ee falls immediately in proportion to P*. If the economy is initially in internal and external balance, will its position be disturbed by such a rise in P*? (b). Use the DD-AA model to compare the domestic economic response under flexible and fixed exchange rate regimes to a temporary rise in export demand from foreign countries.Only like if no ai or downvoted for ai content Suppose that the equilibrium exchange rate between the United States and South African is 15.13 Rand per US dollar. Further suppose that the two countries are trading partners with each other. Inflation now rises in South Africa. Which of the following answer choices correctly represents the shift that would occur in the US foreign exchange market? The supply of US dollars would fall. The demand for South African Rands would rise. The supply of South African Rands would rise.Distinguish between the short run and long run determinants of exchange rate volatility. In your assessment show how the exchange rate movements can influence the Interest Parity Condition. Policy makers can respond to shocks in two possible ways i.e. no policy response and policy stabilisation of economic activity and inflation. -Use the AS- AD framework to demonstrate how aggregate output and inflation would perform following an aggregate demand shock accompanied by monetary policy stabilisation measures -Show how the outputs above would differ in case of a permanent shock on supply using the AD-AS framework.
- Whether the follow statement is true, false or uncertain? And why? Following the announcement that the amount of QE intervention by the central bank will be reduced going forward (also known as Quantitative Tightening), according to the UIP condition, an immediate appreciation of home’s nominal exchange rate would be observed.Suppose that the current EUR/GBP exchange rate is £0.86 per euro. The current 6-month interest rates are: GBP 4%, EUR 6%. There are three 6-month forward contracts available, with the following exchange rates: Contract A B C EUR/GBP 0.86 0.85 0.90 Given the current EUR/GBP exchange rate and the available forward contracts, can you identify any arbitrage opportunities? If yes, provide two examples. In each case, calculate arbitrage profit and explain how this profit can be earned.If in an economy the government increases the income tax of the investors under the conditions of perfect capital mobility. Then what happens to equilibrium interest and output Under the conditions of floating exchange rates regime Under the fixed exchange rate regime. (Graphs required).