Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Question
Chapter 13, Problem 5NP
a
To determine
Domestic
b)
To determine
Whether domestic currency is overvalued, undervalued or neither and impact on official reserve.
b)
To determine
Requirement of money supply
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Students have asked these similar questions
An economy is described by the following two equations.
Y = C (Y – T) + I (r* ) + G – NX(e)
M/P = L(r*, Y)
If the taxes are raised in this economy, and assuming a floating exchange rate regime; explain what happens to:
i. Aggregate income,
Macroeconomics. Explain how the exchange rate adjusts to a temporary decrease in the foreign interest rate, R*, holding output constant
which of the following is an assumption of the monetary approach to the exchange rates?
A - PPP Holds
B - UIRP holds
C - prices are flexible
D - All of the above
E - Only A and C of the above
Chapter 13 Solutions
Macroeconomics (9th Edition)
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- Sunshine is a small open economy described by the following long run classical equation where Y is the economic real GPD,T-taxes,G-government spending,NX-net exports,I- investment, C-consumption r-domestic interest rates, r*world interest rates. Y=8000 G=2500 T=200 C=500+2/3(Y-T) I=900-50r NX=1500-250£ r=r*=8 a) find the trade balance, investment, national savings and the equilibrium exchange rate. b) the government of sunshine cut its spending to 2000.compute the investment,trade balance, national savings and the equilibrium exchange rate. C) now suppose the world interest rates falls from 8-3 per cent (G is again 2000 ).compute private savings public savings, national savings,investmentents,trade balance and the equilibrium exchange rate..arrow_forwardAccording to the simple monetary model, money is growing at 5% in the United States and 6% in the United Kingdom, while real GDP is rising at 3% in the United States and at 5% in the United Kingdom. What will this do to the exchange rate?arrow_forwardThe exchange rate at the beginning of the year was SF1.0000/$. The price level of a typical consumption basket in Switzerland was SF120/SFCB and the price level of a typical consumption basket in the United States was also $100/$CB at the beginning of the year. Calculate the real exchange rate at the beginning of the year. SFCB0.6667/$CB SFCB0.8333/$CB SFCB1.0000/$CB SFCB1.3333/$CB SFCB1.6667/$CBarrow_forward
- Given that the country has a floating exchange rate regime, what are the consequences of a policy mix consisting of simultaneous expansionary fiscal policy and restrictive monetary policy?arrow_forwardExplain how the flexible exchange rate may be use to correct disequilibrium within an economy.arrow_forwardQ27: In 2020, the exchange rate was ¥6.90=$1. Convert the China GDP of ¥101.6 trillion yuan in 2020 with the U.S. GDP of $20.94 trillion for the same year.arrow_forward
- Let S be the USD/GBP exchange rate, P∗ be the pound cost of a consumption basket in the U.K., and P be the dollar cost of a consumption basket in the U.S. Using the units of S, P∗, and P, find the units of the real exchange rate, Q = SP∗/Parrow_forwardWhat happens when international financial capital is completely free to move in and out of countries in search of investment or speculation opportunities? a. Countries lose autonomy to affect GDP through monetary policy under a free-floating exchange rate policy. b. None of the alternatives is correct. c. Countries lose autonomy to affect GDP through fiscal policy under a fixed exchange rate policy. d. Countries lose autonomy to affect GDP through fiscal or monetary policies regardless of the exchange rate policy. e. Countries retain autonomy to affect GDP through fiscal or monetary policies regardless of the exchange rate policy.arrow_forwardThe Mundell-Fleming model provides a hypothesis that the movement of nominal value (e) can affect fluctuations in output (Y). If it is defined as the ratio between foreign and domestic currencies, then answer the following questions:a) Explain the conditions so that the condition r = r* can be met!b) Derive the IS-LM curve for the Mundell-Fleming Model and its difference with the IS-LM curve for a closed economy!c) If a country adopts a fixed exchange rate system, how will it affect the independence of domestic monetary policy? Complete your argument with the IS-LM curve.arrow_forward
- The autonomous region of Catalonia has recently declared independence from Spain, and is looking for an exchange rate policy that would best fit their needs. The Catalans’ main goal is to stabilise the price level in the long-run, but constantly experience fluctuations in the price of foreign goods imported from Spain and other European countries. Would it be better for the Catalans to fix the exchange rate against the Euro, or to adopt a floating exchange rate? Justify your answer briefly.arrow_forwardUsing the model that we have developed, show what would happen with a new equilibrium domestic price level and real output if the government increases government spending that are fully financed by increase of taxes (change of government spending is equal to the increase of taxes). What will be the size of the AD curve shift? Keeping nominal exchange rate and foreign price level constant, what will happen with the real exchange rate, import and net export?arrow_forwardIn a large open economy, the IS curve has been given by Sd(r)-Id(r)=NX(e), where e is the real exchange rate that is positively related to the real interest rate r. Can you illustrate why the IS curve is downward sloping? That is, as Y increases, the real interest rate r is lower in equilibrium.arrow_forward
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