Under fixed exchange rate system and small open economy, expansionary fiscal policy is effective while restricted trade policy is ineffective Graphically explain THE point of view by using Mundell-Fleming model.
Q: Suggest an appropriate policy in order to increase national income for fixed and flexible exchange…
A: Mundell-Fleming model assume fixed prices and small economy.
Q: A Senator announces his past support for protectionism. “The U.S. trade deficit must be reduced, but…
A: When the value of total imports of the economy is substrates from the total value of the exports of…
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: Select and drag answers to each step to describe the following process in the correct order: The…
A: A floating exchange rate is a system in which the forex market determines the value of a country's…
Q: Use the logarithmic model (U=In(C1)+In(C2)) to answer this multiple choice problem. In the…
A: In the two-period logarithmic model , the change in the Current Account caused by a temporary…
Q: If an economy has a widening trade deficit, which of the following monetary policy option will…
A: A trade deficit happens when there is a negative net sum or negative equilibrium in a worldwide…
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: With regard to international borrowing, what are main differences between official channels and…
A: When the government, household, or any corporation of one country takes a loan or debt from the…
Q: Developing countries like China and India start promoting investment. Use the Mundell-Fleming model…
A: The great degree of integration or connectivity among financial or capital markets is one of the…
Q: Why would a market "expectation" of a national rise in the minimum wage in the open macro-economy…
A: The outlook for an economy and the performance of its variables possessed by consumers refer to…
Q: All of the following are factors that can affect the international BOP and either create or reduce…
A: A country's BOP is considered to be in excess when its exports exceed its imports. The BOP deficit,…
Q: A6. A member of the Bretton Woods system that has high unemployment and excessively large current…
A: Expenditure changing policy is stated as a macroeconomic policy that has an impact on the…
Q: Many think that the size of a trade deficit is due to a lack of competitiveness of domestic sectors,…
A: Trade deficit refers to a situation in which the value of imports of goods and services of a nation…
Q: Choose the correct answer and give correct explaination 2. Advantages of a flexible exchange rates…
A: In the international market, flexible exchange rate system refers to the changes in the value of a…
Q: Suppose that Y =Y,NX T in the U.S. Using the large open economy model, illustrate and explain how…
A: The balance of trade is the difference between the monetary value of exports and imports of a nation…
Q: the article, which of the following statements about the Dutch Disease are correct? Check all that…
A: 1. The chosen options (C and D) are correct.
Q: Regarding the Mundell-Flemming framework of an open economy analysis, the three targets that cannot…
A: Economic models help in understanding the economic situations and make predictions on the basis of…
Q: The Small Open Economy macroeconomic model assumes that GDP is constant. However, the model could be…
A: The loanable funds in the market would result in the demand and the supply of the loanable funds in…
Q: Assume that we analyze the Mundell-Fleming model and that the government of a big open economy…
A: In Mundell-Fleming model the assumption of perfect capital mobility ensures that at only one…
Q: How can the following below affect tourism industry? a. Lack of international representation b.…
A: a) Tourism may be characterized as a type of capitalist economy that sells more than just things; it…
Q: Evaluate how a growing trade deficit influences the US economy
A: The difference between exports and imports of goods and services in an economy is called the trade…
Q: Explain the three different viewpoints (meanings) of the current account balance. Discuss the…
A: The current account measures the value of exports and imports of goods and services, income flows,…
Q: Consider a small open economy. Assume that GDP (Y) is 5000. Consumption (C) is given by the…
A: Exchange rate is defined as the value of a currency that is given in terms of another currency. It…
Q: Is trade deficit always a problem? Support your answer with proper reasoning
A: No, trade deficit is not always a bad thing. A country which runs a trade deficit in general imports…
Q: • Consider the long-run model of a small open economy with perfect capital mobility. araning from an…
A: An economy that in turn participates in international trade, but is considered to be small enough as…
Q: Define each of the following terms: c. Trade deficit; devaluation; revaluation
A: Trade deficit: Trade deficit can be defined as a situation where country's import exceeds its…
Q: Let K denote the quantity of capital a country has at the beginning of period t. Also, suppose that…
A: Capital refers to anything that provides value or advantage to its owner, such as a factory and its…
Q: The BRICS initially had high economic growth rates and increasing values of exports and imports. In…
A: A deficit will take place when there the costs are more than the income, or, imports are higher than…
Q: You are the chief economic adviser in a small open economy with a fixed exchange-rate system. The…
A: Exchange rate refers to the amount of domestic currency that required to purchase one unit of…
Q: How a devaluation may reduce the trade deficit of a country? What condition is required to reduce…
A: Devaluation is the fall in the value of a country's currency. As a result of fall in exchange rate,…
Q: What does it mean by "monetary and fiscal policies in a closed economy" when pertaining to…
A: Monetary and fiscal policy are the two main macroeconomic tools that the government can use to…
Q: The macroeconomic view of a trade deficit implies that, other things equal, the imposition of a…
A: Trade deficit is a situation in which value of a country's imports exceeds the value of exports.
Q: Define the term TRADE DEFICIT
A: According to the given question Deficit in simple word we can say that when the level of the amount…
Q: Comparison of Global Current Account surpluses (green and blue bars) and Global Current Account…
A: ANSWER The symmetry in the chart can be described by the concept of international trade or Open…
Q: Economic and Monetary Union does not include which of the following? Select one: a. Closer…
A: Economic and Monetary Union A trading bloc that combines a single market, customs union, and…
Q: According to economic theory, fast-growing countries should be running trade deficits countries…
A: A good trade balance is critical to a country's economy's long-term viability. And a country's…
Q: In the Keynesian balance of payments model A. The trade balance is not affected by income changes.…
A: Answer: In the Keynesian balance of payments, model import is positively related to income. A rise…
Q: Which of the following economic reasoning behind the twin deficit theory is not correct? a.…
A: The budget deficit and trade deficit or current account deficit are known as twin deficit.
Q: In the New Keynesian open economy model with a flexible exchange rate, a decrease in tariffs…
A:
Q: The macroeconomic view of a trade deficit implies that, other things equal, the imposition of a…
A: The statement is True.
Q: Under fixed exchange rate system and small open economy, expansionary fiscal policy is effective…
A: Fixed exchange rate regime is where a country's value is fixed by some monetary authority against…
Q: The macroeconomic view of a trade deficit implies that, other things equal, the imposition of a…
A: A trade deficits occurs when a nation's imports is more than its exports. So, the macroeconomic view…
Q: If international Fisher effect (IFE) holds real exchange rates will be equal across the two…
A: Fisher impact is hypothesis created by Irving Fisher portrays the relationship among genuine,…
Under fixed exchange rate system and small open economy, expansionary fiscal policy is effective while restricted trade policy is ineffective
Graphically explain THE point of view by using Mundell-Fleming model.
Step by step
Solved in 2 steps with 2 images
- Under fixed exchange rate system and small open economy, expansionary fiscal policy is effective while restricted trade policy is ineffective” Do you agree with the statement? Graphically explain your point of view by using Mundell-Fleming model.Consider the case of Turkey, an open macrocconomy with flexible exchange rates and in an initial equilibrium where the economy is producing at the full-capacity utilization (the natural) rate of output (Ys). The economy runs a trade deficit. Assume that the government has two alternative options to tight with the adverse effects of the global recession: an expansionar) monetary policy or an expansionary fiscal policy. Using the IS-LM-UIP frame, oik, for each of the policy options demonstrate the effects on Y, U, 14, E, C, 1, IM, X and NX. Would you recommend an expansionary monetary policy or an expansionary fiscal policy to the government according to the predictions of the IS-LM-UIP framework and the Marshall-Lerner condition?A government official announces a new policy. Thecountry wishes to eliminate its trade deficit, but willstrongly encourage financial investment from foreignfirms. Explain why such a statement is contradictory.
- Within the context of the Mundell-Fleming Model under a fixed exchange rate system, describe how the economy would respond to expansionary fiscal policy a.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by engaging in expansionary monetary policy like increasing government sending in order to increase national income b.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by engaging expansionary monetary policy like open market operation to increase national income. c.There will be no intervention since the exchange rate is already fixed and cannot be changed. d.The IS* curve would shift outward to the right putting upward pressure on the exchange rate. The monetary authority would intervene by selling domestic currency in the foreign exchange market.Choose the correct answer and give correct explaination 2. Advantages of a flexible exchange rates include:A. National policy autonomyB. Easier external adjustmentsC. The government can use monetary and fiscal policies to pursue whatever economic goals it chooses.D. All of the aboveThe macroeconomic view of a trade deficit implies that, other things equal, the imposition of a tariffwill reduce South Africa's trade deficit A Because exports will be promoted and imports cannot possibly changeB Because imports will be reduced and exports cannot possibly changeC Only if the tariff has no impact on South Africa's spending or incomeD Only if the tariff leads to increased income in South Africa relative to its spending
- Who receives the greatest benefit from a trade deficit? O Foreign consumers O Domestic farmers exporting agricultural products O Domestic firms in industries with significant imports O Domestic individuals who own stock Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.Consider a fiscal expansion under a fixed exchange rate regime, where a revaluation (an increase in the exchange rate defended by the central bank) is undertaken to keep the IS curve in exactly the same spot. What is true of this final equilibrium? A. The real exchange rate is higher B. The real exchange rate is lower C. The real exchange rate is unchanged D. There is money neutrality 2. Gains from trade must be present in an economic system because A. everyone likes shopping B. indifference curves and ppfs are convex C. uncertainty means people want to diversify D. none of the above 3. The benefits of free trade are A. proportional to the tariff size B. proportional to the square of the tariff size C. proportional to the cube of the tariff size D. none of the above Ans allIn the Mundell-Fleming model with a floating exchange rate, what happens to the following variables when there is a decrease in business confidence about the future so firms invest less? Include a graph. a. Aggregate Income b. Exchange Rate: c. Trade Balance:
- ‘According to David Hume’s theory of automatic price adjustment, countries experiencing current account deficit see price levels decrease, making them more competitiveandincreasingexports. That makes the current account deficit disappear.’. Critically explore this statement and provide examplesto confirm or disprove it.In the Mundell–Fleming model with fixed exchange rates; i) what happens to aggregate income, the exchange rate, and the trade balance when government increases spending or reduce taxes. ii) and, what would be the result if the exchange rate is floating? graphical explantion if possible pleaseUsing the two periods model of the current account presented in class, explain the effects of a decrease in the interest rate on consumption, trade balance, and the current account of each period. Consider both the case of a “borrower” and a “lender”. Your graph should show both the income and the substitution effect. Please make sure to label the axes, endowment point, and consumption bundles.