In the open-economy macroeconomic model, if investment demand increases, then the real interest rate will _____________________ and the real exchange rate will _________________. Group of answer choices increase, increase decrease, increase increase, decrease decrease, decrease
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- Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?In Krugman’s speculative attack model: a. What is the shadow exchange rate? Why does it increase over time? b. Why does the speculative attack occur at exactly the time the shadow exchange rate equals the fixed exchange rate? c. Why is there no jump in the exchange rate when the speculative attack occurs? d. How can the model be modified so a jump does take place when the speculative attack occurs?Suppose that the federal government increases spending on national defense . Using Mundell - Fleming model for a small open economy , answer the following questions : a . How does it affect IS curve and LM curve ? explain why ? b . What are the changes in total output , exchange rate , consumption , investment and net exports of the economy ? explain why ? c . Draw Mundell - Fleming graph to demonstrate your answer ?
- Because of decreasing the effects recession caused by Corona Outbreak, a government decides to increase its spending and to decrease tax rates which causes a growth in public debt. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does. What happens to the real interest rate? What happens to the real exchange rate?In the open-economy macroeconomic model, the key determinant of net capital outflow is the A. real interest rate. When the real interest rate rises, net capital outflow rises. B. real interest rate. When the real interest rate rises, net capital outflow falls. C. real exchange rate. When the real exchange rate rises, net capital outflow rises. D. real exchange rate. When the real exchange rate rises, net capital outflow falls.Can you help me for question (d), please? In Krugman’s speculative attack model: (a) What is the shadow exchange rate? Why does it increase over time? (b) Why does the speculative attack occur at exactly the time the shadow exchange rate equals the fixed exchange rate? (c) Why is there no jump in the exchange rate when the speculative attack occurs? (d) How can the model be modified so a jump does take place when the speculative attack occurs?
- Course: Macroeconomics Subject: Mundell-Fleming Model EXPLAIN IN DETAIL and GRAPHIC with the Mundell-Fleming model under flexible exchange rate and perfect capital mobility the different chain effects (i.e. changes in macroeconomic variables as PIB, interest rate, exchange rate, Investment, Consumption, currency movement, etc.) that would be generated if the Business Confidence Index falls permanently in a given country. How would the results obtained change if long periods of time (permanent changes) are analyzed through the Aggregate Supply (AS) and Aggregate Demand (AD) Model?The Mundell-Fleming model takes the world interest rate r* as an exogenous variable. Let’s consider what happens when this variable changes. What might cause the world interest rate to rise? In the Mundell-Fleming model, does the IS* curve shift to the left or to the right when the world interest rate rises? How about the LM* curve? In the Mundell-Fleming model with a floating exchange rate, what happens to aggregate income, the exchange rate, exports, imports, and the trade balance when the world interest rate rises?Assume that U.S. products did decline in relative quality during the 1980s. a. Please indicate the effect of this shift in net exports on the U.S. market for foreign exchange. (use the image attached) b. According to this model, which of the following statements are true as a result of the quality change? Check all that apply. - There is no change in the real interest rate. - The trade balance decreases - Net capital outflow decreases. -The real exchange rate declines. c. The claim that some people made in the popular press is? isn't? consistent with the model in this chapter.
- a) True or False? In Mankiw’s model of an open economy, the demand for loanable funds has two components: one is the need of domestic residents to borrow to purchase newly produced capital goods, and the second is their need to borrow to purchase foreign assets b) True or False? In Mankiw’s model of an open economy, the nominal exchange rate, e, is determined by the interaction of the supply of dollars and the demand for dollars in the market for foreign currency exchange. c) In an open economy, an increase in a country’s real interest rate will (discourage,encourage) domestic purchases of foreign assets and will (discourage, encourage) foreign purchases of domestic assets. Therefore, an increase in the real interest rate will (increase,reduce) net capital outflow. Answer these three sub-partsDefine nominal exchange rate and real exchange rate. What are the two main types of exchange-rate systems? What explains the behavior of net exports represented by the J curve? How does real exchange rate affect net exports? Explain and give one example.Select all that are true given an acceleration of economic growth in the Brazilian economy: A.Long term investors would invest in the Brazilian economy, but only if the structural aspects of its economy support it (e.g. fiscal policy & the rule of law) and this would depreciate the currency B.The domestic currency (the Real) would depreciate as foreign investors seek higher returns at lower risk in Brazil. C.Contractionary monetary policy would appreciate the domestic currency due to the lower risk, ceteris paribus. D.The domestic interest rate would increase as the demand for loanable funds is pro-cyclical