he IS/LM/BP analysis suggests that, if the BP curve is flatter than the LM curve and the exchange rate is flexible, expansionary fiscal policy will lead to _______ of the country's currency. This will make the fiscal policy _______ effective in influencing national income than if the country had a fixed exchange rate. Select one: a. a depreciation / more b. a depreciation / less c. an appreciation / more d. an appreciation / less

he IS/LM/BP analysis suggests that, if the BP curve is flatter than the LM curve and the exchange rate is flexible, expansionary fiscal policy will lead to _ of the country's currency. This will make the fiscal policy _ effective in influencing national income than if the country had a fixed exchange rate. Select one: a. a depreciation / more b. a depreciation / less c. an appreciation / more d. an appreciation / less

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter22: International Finance

Section: Chapter Questions

Problem 10QP

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QUESTION 10Suppose there are two countries that are identical in every way with the following exception. Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose government spending in both countries rises by the same amount. Given this information, we know that: the change in output in A will be greater than in B. the change in output in B will be greater than in A. the change in output will be the same in both countries. the relative output effects are ambiguous.
Consider an OPEN ECONOMY with a floating exchange rate regime. In the aftermath of recent elections won by the country’s socialist party, consumer confidence and consumption has increased dramatically. Within the IS-MP framework for an open economy, explain and illustrate graphically what the effect is of the increase in overall consumption on equilibrium output, the real interest rate, net cash outflow, the trade balance and the country’s real exchange rate.
C= C0 + cYD YD = Y I = I0 - br NX = N0 - n1Y + n2Yf + n3R M/P = M0 + m0Y - m1.r where AD = C + I + G0 + NX. What is the impact of M0 and G0 on the equilibrium value of R. That is, discuss the role ofmonetary policy and fiscal policy on the real exchange rate.
Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (a) Assume real income increased in the United States. Explain how this increase in income in American GDP will affect the FOREX graph of the Yen b) Will each of the following increase, decrease, or stay the same as a result of the increase in the United States real income? (i) Japan’s net exports. Explain. (ii) Unemployment in Japan. Explain. (iii) Japan’s long-run aggregate supply (c) Assume instead household savings increased in the United States. What would happen on loanable funds market in the United States with the supply of loanable funds, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States? e) Based on…
urgent Consider an OPEN ECONOMY with a floating exchange rate regime. In the aftermath of recent elections won by the country’s socialist party, consumer confidence and consumption has increased dramatically. Within the IS-MP framework for an open economy, explain and illustrate graphically what the effect is of the increase in overall consumption on equilibrium output, the real interest rate, net cash outflow, the trade balance and the country’s real exchange rate.
QUESTION 4: PLACE TRUE OR FALSE OR UNCERTAIN (T/F/U) According to the classical macroeconomic model, expansionary fiscal policy has an inflationary effect. Assuming that you have free capital mobility and fixed exchange rate policy, then fiscal policy has a positive effect on output Expansionary fiscal policy always has a depreciating effect on the domestic exchange rate. According to the relative income hypothesis, the savings rate is a non-linear function of the ratio of current to previous peak income. In the IS-LM-BOP model, macroeconomic adjustments occur through changes in money supply if the country adopts a fixed exchange rate regime. According to the impossible trinity, a country that has a liberalized capital account and independent monetary policy will also achieve a stable exchange rate.
An analyst argues that exchange rate movements depend on interest rate differentials (that is, the International Fisher effect), country-specific economic policy uncertainty measures and country-specific GDP growth rates. With this in mind, the analyst estimates the following model: Expected rate of appreciation of yen against the dollar(%)= =0.5[idollar(%) – iyen(%)]+0.5[idollar(%) – iyen(%)]2+0.2[σUS(%) – σJAP(%)]+ +0.2[σUS(%) – σJAP(%)]2+0.1[GDPJAP(%) – GDPUS(%)]. In this model, idollar(%) is the one-year interest rate in the US, iyen(%) is the one-year interest rate in Japan, σUS(%) refers to economic policy uncertainty in the US, σJAP(%) refers to economic policy uncertainty in Japan, GDPUS(%) refers to annual GDP growth in the US and GDPJAP(%) refers to annual GDP growth in Japan. Assume idollar=6%, iyen=4%, σUS=5%, σJAP=1%, GDPUS=2% and GDPJAP=1%. Calculate the expected rate of appreciation of the yen against the dollar
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Graphically illustrate the traditional view of the short-run impacts of a debt-financed taxcut on:a. interest rates and output in a closed economy in the short run, using the IS–LM model.b. exchange rates and output in a small open economy with a flexible exchange rate inshort run, using the Mundell–Fleming model.
D4) FinanceImagine that the economy is at a point that is below both AA and DD, where both the output and asset markets are out of equilibrium. Which first action is TRUE? The exchange rate will first increase to a point on the AA schedule. The exchange rate will first move to a point on the DD schedule. The output will directly decrease. The output will directly increase. The economy will stay at this level in the short run.