Monetary policy is effective both in an open economy and in a closed economy. BUT the monetary transmission mechanism is different. Please explain the monetary transmission mechanism in a closed/open economy.

Q: Regional differences that make implementing monetary policy difficult are present in the Eurozone…

A: Monetary policy refers to the one that is implemented by the central bank to make changes in the…

Q: If the United States were running large trade deficits with Germany under an international gold…

A: If the United States were running large trade deficits with Germany under an international gold…

Q: Sterilization occurs when the Fed Implements a fixed exchange rate system Changes the prime lending…

A: Sterilization is basically the action taken place by the monetary authority to limit the effect of…

Q: In an economy with flexible exchange rates and imperfect capital mobility the government of this…

A: Macroeconomics is a sub-part of economics that is used to understand, the policies and fiscal…

Q: What are the goals of monetary policy? What are the monetary policy targets? Which target is…

A: Hi. Since there are multiple questions we will answer the first three questions.

Q: An increase in the demand for domestic goods in South Africa could be the result of: (a)…

A: Domestically produced goods are important for the economy. The factors of production used for…

Q: Expansionary fiscal policy is a useful instrument which can be used to stimulate aggregate spending…

A: The fiscal policy is the government policy in which government uses tax and government expenditure…

Q: Using the Mundell-Fleming model, explain whether you think a country should pursue an expansionary…

A: The fixed exchange rate system is when the central bank interferes and buys or sells the foreign…

Q: A foreign exchange intervention with an offsetting open market operation that leaves the monetary…

A: The foreign exchange intervention to change the currency value in the foreign exchange market by…

Q: Many developing countries, like Mexico, have moderate to high rates of inflation. At the same time,…

A: There is high inflation in many developed countries, such as México. As inflation is high currency…

Q: Suppose the Bank of Canada contracts the money supply in an effort to reduce aggregate demand by a…

A: Meaning of Aggregate Demand: The term demand refers to the situation where an individual is…

Q: In 2015, Switzerland stopped pegging its currency to the Euro, and instead reduced interest rates in…

A: Pegged exchange rate is the regime in which the value of the exchange rate of a country is kept…

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: If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and…

A: The value of a currency relative to the currency of associate other country or economic zone is…

Q: According to the Impossible Trinity, if a country decides to make its currency freely floating, what…

A: The Impossible trinity is an economic theory, which suggests that countries can choose from three…

Q: In an economy with a flexible exchange rate, an expansion in the nominal stock of money leads to the…

A: In an economy with a flexible exchange rate, an increase in the money supply will have an effect on…

Q: The transmission mechanism for contractionary monetary policy implies that:   a.     Australian…

A: The transmission mechanism is the cycle through which monetary policy choices influence the economy…

Q: If the Fed lowers the federal funds rate so that the exchange rate falls, then imports ________ and…

A: The fall in the exchange rate implies the fall in the value of currency or depreciation of currency…

Q: Barter economy O generates lower storage costs compared to the monetary economy makes price…

A: Barter economy refers to the economy where goods are exchanged for goods . This economy is also…

Q: If the U.S. has no access to international savings, through what mechanism will crowding out of…

A: The international savings would result in the foreign investment which includes the foreign direct…

Q: Assess the validity of the following statement:  A fiscal expansion is especially powerful under a…

A: A controlled currency is one in which the value and exchange rate are modified by central bank…

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: The primary purpose of the central bank's monetary policy is: a. exchange rate b. price stability c.…

A: Inflation and unemployment are the two major factors that affect the growth of any economy. So the…

Q: When a country operates with a currency board, the central bank's sole objective is to maintain the…

A: When a country operates with a currency board, the central bank's sole objective is to maintain the…

Q: Consider the case of a fixed exchange rate system as held in Europe before the Euro. All countries…

A: When the country fixes its exchange rate with foreign economy like Germany, then the domestic…

Q: If President Erdogan wants to keep interest rates low, according to the Trilemma  components, this…

A: Low interest rate increase the money demand in the economy and this low interest target is need to…

Q: “If a country wants to keep its exchange rate fromchanging, it must give up some control over its…

A: The exchange rate is basically the value of a country's currency compared to the currency of other…

Q: The three possible goals of the central banks usually monetary policy are: to control inflation, to…

A: When central bank tries to focus on two goals at a time, it faces conflicts between the two goals.

Q: About Capital mobility assuming κ>h on flexible Exchange rates, Show the effects of contractionary…

A: Flexible exchange rate system: The exchange rate under this is determined by the market forces of…

Q: Is the following true, false or uncertain? In a 2-bloc world economy with flexible exchange rates,…

A: The measure that depicts the value of one currency being measured in terms of another currency is…

Q: Under a flexible exchange rate regime, if a foreign trading partner goes into recession  a. the…

A: A floating exchange rate is a regime where the currency price of a nation is set by the foreign…

Q: If the central bank raises interest rates it will A) lower aggregate demand and raise the…

A: " Aggregate demand reflects the relationship between price level and total number of all the final…

Q: In an open economy, explain and show the effect of restrictive monetary policy on output under…

A: Flexible exchange rate system is that system when there is no government intervention and exchange…

Q: argues about the intervention of monetary policy as instruments to promote growth, sustainability…

A: The policy that helps in controlling the available money quantity in an economy and the channels…

Q: Answer TRUE/FALSE/UNCERTAIN with explanations (200 words) In a 2-bloc world economy with…

A: The rate of exchange is a measurement that reflects the value of one currency in relation to the…

Q: Explain how the exchange-rate transmission mechanism can strengthen the interest-rate transmission…

A: The Monetary Policy is defined as a policy which is used by the government to control a nations…

Q: The SARB can reduce inflationary pressure in the economy if an increase in interest rates leads to a…

A: An interest rate is the amount of cost for borrowers to pay for receiving the loan amount, while the…

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: hard currency implies     a strong currency that is well supported by reserves.     that coins are…

A: The currency that is generally been issued or printed by a country that is seen as politically and…

Q: Suppose country A’s goods become more popular with foreign consumers, and country B’s less so. How…

A: Economics as a subject deals with the allocation of scarce resources among humans with unlimited…

Q: As it relates to the European Union, what is the ECB? The European Central Bank, responsible for…

A: The European Central Bank (ECB) is the central bank which handles the monetary policies of the…

Q: The reason the country of Ecuador has adopted the use of the US dollar for transactions within the…

A: The country of Ecuador has adopted the use of the US dollar for transactions within the country. the…

IS-LM-PC Analysis

The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.  

IS-LM Analysis

The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.