do only question 8 Suppose that we are in a country Localia, again trading LCL as our currency. We are still tradingwith Nearovia and their Nearos.Suppose also that Localia begins at its long-term equilibrium level of Real GDP. Now supposethat Localia experiences an increased in its autonomous desired investment.7. If Localia was a closed economy, what would we expect to happen to its Real GDP andthe price level in the short-run? Explain using the AD-AS figure.8. Suppose instead that Localia is an open economy, that trades both goods and assets withNearovia, and the LCL-NER exchange rate is a flexible exchange rate. What happens tothe short-run Real GDP and price level now? Does this flexible exchange rate have astabilizing or de-stabilizing effect on Real GDP relative to your answer in Q7? Explainusing the AD-AS figure.9. Finally, Suppose instead that the LCL-NER exchange rate is a fixed exchange rate instead,maintained by the Localia Central Bank. Does this fixed exchange rate have a stabilizingor de-stabilizing effect on Real GDP relative to your answers in Q7 or Q8? Explain usingthe AD-AS figure.10. In the case of this fixed exchange rate, what action does the Central Bank of Localia needto take to maintain the fixed rate in this example?

Since you have asked us to solve only question 8, we will answer the given question for you. If you…

Answered: Suppose that we are in a country…

Suppose that we are in a country Localia, again trading LCL as our currency. We are still trading with Nearovia and their Nearos.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Assume we have a small open economy. The government budget is in balance (T-G=0) and Savings equals investment (S-I=0). A. Suppose the government increases G by 100, holding taxes constant. Given that Savings = Private Savings + Public savings. What happens to S-I? Be specific (numbers). B. Given that I = I (r), what happens to the real interest rate? Does it rise or fall? Why? C. Given that in A there was a change in the S-I, what happens to Net Exports? Be specific (numbers). Why?
The Government has increased spending by TL 12 billion to increase aggregate demand in the economy. The IS-LM model tells us, aggragate demand will increase, but so will interest rates. The Government is worried that increasing interest rates will lead to crowding out. Which policy chould be implemented to keep interest rates at lower levels and prevent crowding out of private investment and consumption? a.The Government reduces taxes on consumption and investment b.Central Bank starts an asset purchasing facility to increase the money supply c.All of the above will have the same effect d.Central Banks increases the reserve ratio to reduce the money supply
Consider a macroeconomic model for an open economy with the government. Consumption is given by C = 250 + bYd, where b = 0.8, Yd = (1-t)Y, and t = 0.1. Investment is given by I = 1,200 – 2,000R, and net export is given by X = 525 – 0.1Y – 500R. Assume that G = 1,200. Money demand is given by (Md/P) = 0.1283Y – 1,000R. Assume that P = 1, and the fixed money supply is given by (Ms/P) = 900. Drive the expression for the IS curve from the model. Drive the expression for the LM curve from the model. Drive the IS-LM equilibrium from the model.
Question no1 Suppose in a closed economy, the government reduces her household incometax. Using relevant Classical Theories, explain its long-run effects on savings,real interest rates,s and investments. Question no 2 Suppose Country A is a small open economy with a trade deficit. With a risingconcern of plausible supply chain issues, business firms in Country A tend toincrease their level of inventory. Using relevant Classical Theories, explain how this would affect her netcapital outflow, real exchange rate and trade deficit in the long run.
Question Need help calculating this one. Please show all work. Hints: Equilibrium Condition is S=I. If economy is open r=r*. Assume that in a small open economy where full employment always prevails, national saving is 300. a. If domestic investment is given by I = 400 – 20r, where r is the real interest rate in percent, what would the equilibrium interest rate be if the economy were closed? b. If the economy is open and the world interest rate is 10 percent, what will investment be? c. What will the current account surplus or deficit be? What will net capital outflow be? Assume that in a small open economy where full employment always prevails, national saving is 300. a. If domestic investment is given by I = 400 – 20r, where r is the real interest rate in percent, what would the equilibrium interest rate be if the economy were closed? b. If the economy is open and the world interest rate is 10 percent, what will…
Assume that an economy prefers an internal balance (Y = Y) to an external balance (NX = 0). Then the only aim of the economy is to keep the equilibrium output level at the level of potential output (Yf= 1500 units). Suppose that the IS and BP models for this economy are as the following. Please the the attached photo
1. Use the following information for this problem: 1 Goods Market: C = 3+0.5(Y-T) I = 12-50rT = 10 G = 10 Asset Market:MS = 25/P; assume that the P=1 initially MD = Y - 50r Numerically solve for the initial general equilibrium interest rate, output, and price? Assuming the economy is a closed economy what is the desired level of savings, investment, and net exports for the economy? Suppose that an economy is faced with an increased risk in the stock. Show graphically (hand drawn only) under the Keynesian assumptions what happens in the SR and the LR. Include both the asset market (showing how the shock impacts the other graphs), the IS/LM/FE, and the AD/AS models making sure to completely label the graphs. Suppose that when the economy is in the Short Run equilibrium (hand draw a new graph starting at the Short Run) the Federal Reserve wants to conduct a stabilization policy. What is the policy they would use called? Show graphically how they would stabilize.…
. Suppose you read that prospects for stronger futureeconomic growth have led the dollar to strengthen andstock prices to increase.a. What effect does the strengthened dollar have on theIS curve?b. What effect does the increase in stock prices have onthe IS curve?c. What is the combined effect of these two events onthe IS curve?
Use the following information for this problem: Show graphics!!! 1 Goods Market: C = 3+0.5(Y-T) I = 12-50rT = 10 G = 10 Asset Market:MS = 25/P; assume that the P=1 initially MD = Y - 50r Numerically solve for the initial general equilibrium interest rate, output, and price? Assuming the economy is a closed economy what is the desired level of savings, investment, and net exports for the economy? Suppose that an economy is faced with an increased risk in the stock. Show graphically (hand drawn only) under the Keynesian assumptions what happens in the SR and the LR. Include both the asset market (showing how the shock impacts the other graphs), the IS/LM/FE, and the AD/AS models making sure to completely label the graphs. Suppose that when the economy is in the Short Run equilibrium (hand draw a new graph starting at the Short Run) the Federal Reserve wants to conduct a stabilization policy. What is the policy they would use called? Show graphically how they would…
Question Consider that the Ghanaian economy is a small and close, which is characterised by the following. AD=C+I+G+NX C=a+bY* Y*=disposal income T=T0 I=I0 G=G0 Md/P=Ld(Y,i) Ms=money supply ,which is given . AD=Aggregate demand ,C=consumption,G=Government expenditure ,T=Tax,P= Pricelevel,I=Investment,NX=Netexports (a) Consider an increase in Government spending ∆ > .Assume for now that both price and expected price are fixed. Also assume that government does not implement any other policy than the increase in Government spending. What is the effect of this policy on the goods market? (b) What is the effect on equilibrium in the money market? Present your answer in swells labelled diagram, showing both money supply and demand before the policy was implemented, and that after the policy was implemented in the same graph. (c) Solve for equilibrium in the goods market. d) Suppose the policy change is rather a increase in real money supply not a decrease in government spending.What…
3. Answer the following numerical questions about the IS-FX model. a. The consumption function is C = 1.5 + 0.5(Y – T). What is the marginal propensity to consume? What is the marginal propensity to save? b. The trade balance is TB = 5(1 – 1/E) – 0.2(Y – 8). What is the marginal propensity to consume foreign goods? What is the marginal propensity to consume home goods? c. The investment function is I = 3 – 10i. What is investment when the interest rate i is equal to 5%? d. Assume government spending is G. Add up the four components of demand and write down the expression for D. e. Assume forex market equilibrium is given by I = (1/E – 1) + 0.15, where the two foreign return terms on the right are expected depreciation and the foreign interest rate. What is the foreign interest rate? What is the expected future exchange rate?
What is a foreign exchange rate? (a) The rate at which the currency of one country trades for the goods ofanother country.(b) The rate at which one country’s goods trade for those of another country.(c) The rate at which currencies of different countries are exchanged.(d) The rate at which one country’s currency trades for gold provided byanother country. Induced consumption is: (a) the part of consumption which is independent of the level of income.(b) the minimum level of consumption that is financed from sources other than income.(c) The maximum level of consumption that is financed from sources other than income.(d) shown by the slope of the consumption function. In the Keynesian model, an introduction of a proportional tax will: (a) increase the slope of the consumption function.(b) reduce the multiplier.(c) increase the equilibrium level of income.(d) increase the multiplier. A decrease in the price level will: (a) shift the AS curve to the left.(b) shift the AD curve to the…