How does an increase in government spending affects aggregate demand, investment, and net exports in a small open economy with flexible exchange rates?

Q: Examine how surpluses and deficits in the balance of payments (BOP) affect exchange rates.

A: Introduction - All central bank transactions are recorded in the account on the balance of payments…

Q: In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the…

A: The value of two currencies in terms of their purchasing power. While two currencies may have the…

Q: Which policy measure is most likely to be effective in reducing a balance of trade deficit? Pick…

A: This situation is also referred as negative trade balance.

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: You read in the paper that the dollar has strengthened in value relative to the euro. How is this…

A: Value of a currency states the price or interest rate at which people from different countries are…

Q: What is meant by current account deficit and current account surplus? State their significance

A: A balance of payment account is a record of international transactions of an economy over a…

Q: Are current account deficits necessarily undesirable? Provide a brief justification.

A: What Is a Current Account Deficit and How Does It Affect You? The current account deficit is a…

Q: Is monetary approach an automatic adjustment mechanism to correct a deficit in the balance of…

A: The exchange rate is the rate at which the currencies of two countries can be traded for each other.…

Q: What is the real exchange rate, and how are fluctuations in the real exchange rate related to…

A: The product of the nominal exchange rate (for example, the dollar cost of a euro) and the price…

Q: In a country if households decide to save ____________,then the real exchange rate ____________ and…

A: If saving is more,investment expenditure will be more.Therefore aggregate demand will increase which…

Q: 3. Briefly discuss the following statement, explaining what is right or wrong about it: "The average…

A: 3) The statement explains that the current account balance of all countries in the world is in…

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: In a flexible exchange rate system with perfect capital mobility, expansionary fiscal policy will…

A: A flexible exchange rate(FER) system defines as the rate of exchange between two counties which is…

Q: Which government policy measure would be most likely to reduce a current account deficit and…

A: A current account deficit occurs when a country's export is lower than a country's import.

Q: Discuss the implications of a persistent current account deficit for an open economy like Pakistan…

A: A current account deficit is a trade indicator that indicates a country's imports of goods,…

Q: How can a surge in exports and decrease in imports cause an increase in aggregate demand and what…

A: Aggregate demand is defined as the total demand of all final commodities and services at a given…

Q: If the central bank were to increase the money supply in a fixed exchange rate regime, what impacts…

A: Fixed exchange-rate system is an economic system in which the currency is kept fixed i.e. it is not…

Q: How is the impact of contractionary monetary policy different in an open economy than in a closed…

A: Contractionary Monetary Policy is refers to decrease in money supply to promote economic growth.…

Q: Given that the country has a floating exchange rate regime, what are the consequences of a policy…

A: As a result of expansionary monetary policy, the LM shifts rightwards and the output and interest…

Q: Which of the following terms refers to a concept that helps to explain why deflation can create a…

A: Deflation refers to tee situation where the price of good decreases as result of decreasing the…

Q: For Turkey, would each of the following transactions affect net exports or net capital outflow or…

A: Hi! Thank you for the question, As per the honor code, we are allowed to answer three sub-parts at a…

Q: Suppose that in a small open economy with floating exchange rate system the government reduces the…

A: When exchange rate increases then there is a decrease in export and increase in import.

Q: Two of the reasons that explain the downward sloping aggregate demand are the interest rate effect…

A: When interest rate decreases,money supply increases and therefore aggregate demand increases.

Q: Give reasons, supported with clear explanations, why countries opt for a floating exchange rate?

A: The exchange rate is the rate at which domestic currency is exchanged with foreign currency in the…

Q: Why is a current account surplus equivalent to foreign investment ？

A: The countries worldwide gets involved in the sale and purchase of the goods, services, inputs of…

Q: What happens when international financial capital is completely free to move in and out of countries…

A: The interaction between the countries will have a significant impact on the domestic trade and the…

Q: Explain why a country with fixed exchange rate and open financial markets has to give up its…

A: The theory that depicts that countries might tend to choose among options while making decisions…

Q: How and why will switching from a flexible to fixed exchange rate regime affect exports as a…

A: It is the rate at which one country's currency may be exchanged for another. For example, if one…

Q: Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt…

A: The exchange rate refers to the price of one nation's currency in terms of another nation's…