Consider the relationship between exchange-rate changes, aggregate demand, and monetary policy. a. Suppose the world price for raw materials rises, due to a growing demand for these products. On the AD/AS diagram on the right show the likely effect of this on Canadian aggregate demand, given that Canada is a net exporter of raw materials and assuming, initially, no change in the exchange rate. Use the three-point curve drawing tool to draw the new position of the AD curve. Carefully follow the instructions above, and only draw the required object. Price Level Figure 1 Real GDP AS AD ✓

Consider the relationship between exchange-rate changes, aggregate demand, and monetary policy. a. Suppose the world price for raw materials rises, due to a growing demand for these products. On the AD/AS diagram on the right show the likely effect of this on Canadian aggregate demand, given that Canada is a net exporter of raw materials and assuming, initially, no change in the exchange rate. Use the three-point curve drawing tool to draw the new position of the AD curve. Carefully follow the instructions above, and only draw the required object. Price Level Figure 1 Real GDP AS AD ✓

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

COURSE: MACROECONOMIC - MUNDELL-FLEMING MODEL Until mid-2005, the Central Bank of China established a fixed exchange rate between its currency (yuan) and the dollar. The fixed exchange rate regime was reintroduced during the Great Recession between July 2008 and June 2010.After that date, the Chinese central bank established fluctuation bands for the yuan allowing it to move within these bands. However, the US has accused China on several occasions of taking actions to devalue its currency against the dollar.EXPLAIN and GRAPH with an open economy model with a fixed exchange rate (MUNDELL-FLEMING MODEL) the different chain effects that are generated when a country devalues its currency. From your results DETERMINE why it would be convenient for China to devalue its currency with respect to the dollar and in what way USA is harmed. Hint: according with statement on first paragrah, explain what's happens if devaluation process is defined and by Mundell-Fleming Model explain differents…
Explain how changes in exchange rates impact the economy through the aggregate demand- aggregate supply (AD/AS) model. Explain how fluctuations in exchange rates can influence loans and banks.
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, and TB. Assume the government allows the exchange rate to float and makes no policy response. a. Foreign output decreases. b. Investors expect a depreciation of the home currency. c. The money supply increases. d. Government spending increases Please illustruate the IS-LM model and explain in detail. I want to understand
The Mundell-Fleming model takes the world interest rate r* as an exogenous variable. Let’s consider what happens when this variable changes. What might cause the world interest rate to rise? In the Mundell-Fleming model, does the IS* curve shift to the left or to the right when the world interest rate rises? How about the LM* curve? In the Mundell-Fleming model with a floating exchange rate, what happens to aggregate income, the exchange rate, exports, imports, and the trade balance when the world interest rate rises?
Consider the relationship among exchange-rate changes, aggregate demand, and monetary policy. Assume we begin in a situation with real GDP equal to Y∗.Y*. Suppose the world price for raw materials rises because of growing demand for these products. Given that Canada is a net exporter of raw materials, what is the likely effect on Canadian aggregate demand? Show this in an AD/AS diagram (assuming no change in the exchange rate). Suppose instead that there is an increase in the demand by foreigners for Canadian financial assets such as government bonds. What is the direct effect on Canadian aggregate demand? Show this in an AD/AS diagram (assuming again no change in the exchange rate). Both of the shocks described above are likely to cause an appreciation of the Canadian dollar on foreign-exchange markets. As the Canadian dollar appreciates, what are the effects on aggregate demand in part (a) and in part (b)? Show these “secondary” effects in your diagram and explain. Given your…
Derive the AD curve (representing medium run combinations of real exchange rate and output, where goods market is in equilibrium and r = r*) from the IS curve. Hint: think about how changes in the real exchange rate affect the IS curve. To derive the AD, map the combinations of q and y on each IS curve at r = r*. Please provide an illustration of the mapping and the deriving of the AD.
Define nominal exchange rate and real exchange rate. What are the two main types of exchange-rate systems? What explains the behavior of net exports represented by the J curve? How does real exchange rate affect net exports? Explain and give one example.
Course: Macroeconomics Subject: Mundell-Fleming Model EXPLAIN IN DETAIL and GRAPHIC with the Mundell-Fleming model under flexible exchange rate and perfect capital mobility the different chain effects (i.e. changes in macroeconomic variables as PIB, interest rate, exchange rate, Investment, Consumption, currency movement, etc.) that would be generated if the Business Confidence Index falls permanently in a given country. How would the results obtained change if long periods of time (permanent changes) are analyzed through the Aggregate Supply (AS) and Aggregate Demand (AD) Model?
Use the money market and FX diagrams to answer the following questions. This question considers the relationship between the Indian rupee (Rs) and the U.S. dollar ($). The exchange rate is in rupees per dollar, ERs/$. On all graphs, label the initial equilibrium point A. a. Illustrate how a permanent increase in India’s money supply affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. b. By plotting them on a chart with time on the horizontal axis, illustrate how each of the following variables changes over time (for India): nominal money supply MIN, price level PIN, real money supply MIN/PIN, interest rate iRs, and the exchange rate ERs/$. c. Using your previous analysis, state how each of the following variables changes in the short run (increase/decrease/no change): India’s interest rate iRs, ERs/$, expected exchange rate EeRs/$, and price level PIN. d. Using your previous analysis, state how each of the…
Subject: Apply Mundel-Fleming Model Explain with the Mundell-Fleming Model under flexible exchange rate and perfect capital mobility the different chain effects that would be generated if the business confidence index in Chile falls permanently due to changes in the project for a new constitution of the republic. How would the results obtained change if analyzed over long periods of time through an Aggregate Supply (AS) and Aggregate Demand (AD) model?
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, and TB. Assume the government allows the exchange rate to float and makes no policy response. d. Government spending increases For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. Note: Assume the government responds by using monetary policy to stabilize output and assume the exchange rate is floating. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, and TB. d. Government spending increases. Please illustruate the IS-LM model and explain in detail. I want to understand for the upcomming test. Thank you in advanced.
Consider a positive country-specific aggregate demand shock. For a member country of a common currency area, the real exchange rate channel of adjustment to this shock is stabilizing. (Assume there is no policy response to the shock.) Draw a diagram depicting the adjustment. Also use equations.