Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 13, Problem 4RQ
To determine
J Curve and explanation regarding the behavior of net exports.
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What is J-curve? Explain the behavior of net exports represented by the J curve.
What does this graph show and what is the relationship between real exchange rate and net exports?
Q-3:
B.
The following graph shows a relationship between saving (S), investment (I) and world interest rate (r*); given that r*> r, where r is domestic interest rate.
Graphically show and interpret the impacts of following policy measures on saving (S), investment (I), and net exports (NX):a) Change in fiscal policy at homeb) Change in fiscal policy abroadc) An increase in investment demand
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- Consider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the economy of this country in billions of dollars, where C is consumption, DI is disposable income, I is investment, and G is government purchases: C� = = 30+0.8×DI30+0.8×DI G� = = 5050 I� = = 6060 Initially, this economy had a lump sum tax. Suppose net taxes were $50 billion, so that disposable income was equal to Y – 50, where Y is real GDP. In this case, this economy's aggregate output demanded was ___________ . Suppose the government decides to increase spending by $10 billion without raising taxes. Because the spending multiplier is ____________ , this will increase the economy's aggregate output demanded by ____________ . Now suppose that the government switches to a proportional tax on income of 10%. Because consumers retain the remaining 90% of their income, disposable income is now equal to 0.90Y. In this case, the economy's aggregate output…arrow_forwardIn your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making. How does an increase in Japan’s government budget deficit affect each of the following? The real interest rate in the short run in Japan. Explain. Private domestic investment in plant and equipment in Japan. Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following. Supply of euros. Explain. Yen price of the euro To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchang market? Explain.arrow_forwardA country with higher nominal interest rates than its trading partners will see its exchange rate depreciate in value relative to the currencies of its trading partners in the long run. Is this statement true or false? Briefly explain why.arrow_forward
- Suppose policy makers want to increase net exports (NX) and keep output (Y) constant. Which of the following policies would most likely achieve this? A.an increase in government spending B.a real depreciation C.an increase in government spending and a decrease in the real exchange rate D.a decrease in the real exchange rate and a tax increasearrow_forwardSuppose that the U.S. imposes a tariff on imported automobiles. Answer the following questions in words and with a diagram. (a) What happens to the demand for dollars in the market for foreign-currency exchange? (b) What happens to the real exchange rate? (c) What happens to net exports? Why?arrow_forwardSuppose there is an increase in foreign output. Show the effect on the domestic economy . What is the effect on domestic output? On domestic net exports?arrow_forward
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