To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

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Answer 1

Question

Chapter 19, Problem 4QAP

a)

To determine

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

b)

To determine

To state: The effect of an increase in foreign interest rate on the domestic output.

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Use the open-economy IS/LM model (the Mundell-Fleming model) to predict what will happen to Y, r, I, EX, NX under a floating (flexible) exchange rate regime in a small open economy. Be sure to depict the appropriate graphs, axes labels, and curve shifts in all your answers. a. An increase in consumer confidence about the future induces consumers to spend less and save more. b. The “Buy American” campaign ads induce domestic consumers to purchase fewer foreign-made goods. c. The central bank sells bonds to the public.

In the monetary small open-economy model, suppose that money supply equals 100. The money demand function takes the form Md=P(0.5Y-400r). The foreign price level P* is 1. The equilibrium output Y is 200 and the world interest rate r* is 0.2. (a) Determine the equilibrium exchange rate. (b) If the country adopts a flexible exchange rate regime, what will be percentage change in the equilibrium exchange rate if money supply goes up by 10%? (c) If foreign price rises by 50%, what will be the percentage change in the equilibrium exchange rate? In this case, we assume that money supply is fixed at 100. (d) If the country wishes to stabilize the exchange rate, what will be the new money supply if foreign price rises by 50%?

In the monetary small open-economy model, suppose that money supply equals 100. The money demand function takes the form Md=P(0.5Y-400r). The foreign price level P* is 1. The equilibrium output Y is 200 and the world interest rate r* is 0.2.(a) Determine the equilibrium exchange rate.(b) If the country adopts a flexible exchange rate regime, what will be percentage change in the equilibrium exchange rate if money supply goes up by 10%?

Answer 2

Question

Chapter 19, Problem 4QAP

a)

To determine

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

b)

To determine

To state: The effect of an increase in foreign interest rate on the domestic output.

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Answer 3

Question

Chapter 19, Problem 4QAP

a)

To determine

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

b)

To determine

To state: The effect of an increase in foreign interest rate on the domestic output.

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Answer 4

Question

Chapter 19, Problem 4QAP

a)

To determine

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

b)

To determine

To state: The effect of an increase in foreign interest rate on the domestic output.

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Answer 5

Chapter 19, Problem 4QAP

a)

To determine

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

b)

To determine

To state: The effect of an increase in foreign interest rate on the domestic output.

Answer 6

Chapter 19, Problem 4QAP

a)

To determine

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

Answer 7

Chapter 19, Problem 4QAP

a)

To determine

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

Answer 8

b)

To determine

To state: The effect of an increase in foreign interest rate on the domestic output.

Answer 9

b)

To determine

To state: The effect of an increase in foreign interest rate on the domestic output.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 19 - Prob. 1QAP Ch. 19 - Prob. 2QAP Ch. 19 - Prob. 3QAP Ch. 19 - Prob. 4QAP Ch. 19 - Prob. 5QAP Ch. 19 - Prob. 6QAP Ch. 19 - Prob. 7QAP Ch. 19 - Prob. 8QAP

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

Solution Summary: The author explains the effect of an increase in foreign output on domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

To state: The effect of an increase in foreign output on the domestic output and the exchange rate, assuming the domestic central bank leaves the interest rate policy unchanged.

To state: The effect of an increase in foreign interest rate on the domestic output.

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