Macroeconomic: 1. With a fixed exchange rate and high capital mobility, is it appropriate to use the fiscal lever to boost economic activity in order to achieve full employment? (explain your answer, you could use the ISLM BP model)
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1. With a fixed exchange rate and high capital mobility, is it appropriate to use the fiscal lever to boost economic activity in order to achieve full employment?
(explain your answer, you could use the ISLM BP model)
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- Sub : EconomicsPls answer very fast.I ll upvote. Thank You a small open economy is described by the following equations: C = 50 + .75(Y-T) I = 200 - 20r NX = 200 -50e M/P = Y -40r G = 200 T = 200 M = 3000 P = 3 r* = 5 a. Derive and graph the IS* and LM* curves. b. Calculate the equilibrium exchange rate, level of income, and net exports c. Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, net exports and the money supply if the government increases spending by 50. Use graph to illustrate what you find. d. Now assume fixed exchange rate. Calculate what happens to the exchange rate, the level of income, net exports and the money supply if the government increases spending by 50. Use graph to illustrate what you find.What is fiscal deficit and what are two reasons why this economic statistic is so closely monitored in small fixed exchange rate economies?4. In 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? i. The real interest rate in the short run in Japan. Explain. ii. Private domestic investment in plant and equipment in Japan.
- In your macroeconomic lectures you are often told that exchange rates and interest ratesare important for macroeconomic decision-making.a. How does an increase in Japan’s government budget deficit affect each of thefollowing?1) Consider a large open economy that engages in a fiscal contraction. In response to this policy change, what will happen to (a) national savings (b) the real rate of interest (c) net capital flows (d) the real exchange rate and (e) net exports?(1) Consumption function: C = 100 + .8Y (2) Planned investment: I = 38 (3) Government spending: G = 75 (4) Exports: EX = 25 (5) Imports: IM = .05 Y4 (6) Disposable income: Y = Y- T (7) Taxes: T= 40 (8) Planned aggregate expenditure: AE = C+I+ G+ EX– IM (9) Definition of equilibrium income: Y = AE
- 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 demandQuestion 1It is often said by economists that fixed exchange rates make monetary policy totally ineffective as a stabilization tool. Explain why you agree or disagree with this statement. Assume an open economy. Keynes favoured fiscal policy over monetary policy to stabilize the economy and fixed exchange rates over flexible exchange rates. Is it consistent or inconsistent to pair fiscal policy with fixed exchange rates and monetary policy with flexible exchange rates? Explain why.Question 5. Assume that in a small open economy with full employment, consumption depends only on disposable income. National saving is 300, investment is given by I= 400 – 20r, where r is the real interest rate in percent, and the world interest rate is 10 percent. a. If government spending rises by 100, does investment change? What is the level of investment after the change? Explain your answer. b. Does the trade balance change if G rises by 100? If it changes, does it increase or decrease, and by how much? Explain your answer. c. Does net capital outflow change if G rises by 100? If it changes, does it increase or decrease, and by how much? Explain your answer. d. Use the long-run model of a small open economy in chapter 5 (the model that shows how exchange rate is determined) to illustrate graphically the impact of increasing the government spending on the exchange rate and the trade balance.
- 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 increaseQ3-19 The IS/LM/BP analysis suggests that, if the BP curve is flatter than the LM curve and the exchange rate is flexible, expansionary fiscal policy will lead to _______ of the country's currency.This will make the fiscal policy _______ effective in influencing national income than if the country had a fixed exchange rate. Select one: a. a depreciation / more b. a depreciation / less c. an appreciation / more d. an appreciation / less(a) There are two countries in the world, Australia and Japan. Suppose that the central bank of Australia lowers the real interest rate, while the central bank of Japan raises the real interest rate. In this case, the nominal exchange rate (Yen/Dollar) increases. Answer true or false. Please briefly explain your answer. (b) Argentina is an open economy. Suppose that Argentina fixes the value of their currency to US dollars. If Argentina experiences hyperinflation, it can stabilize inflation by using its monetary policy freely. Answer true or false. Please briefly explain your answer.
