Question

For each of the following cases, determine whether an individual should buy Canadian bonds or foreign...

For each of the following cases, determine whether an individual should buy Canadian bonds or foreign bonds.

a.    i = 4%, i* = 6%, expected depreciation of our dollar of 3%

b.    i = 4%, i* = 6%, expected depreciation of our dollar of 1%

c.    i = 6%, i* = 5%, expected depreciation of our dollar of 3%

d.    i = 6%, i* = 5%, expected depreciation of our dollar of 2%

e.    i = 5%, i* = 5%, expected appreciation of our dollar of 2%

Use the open economy IS-LM model presented in class to answer the following questions:

a. What are the effects of a decrease in foreign output (Y*) on domestic output (Y) and   domestic interest rate (i)? [ show on the IS-LM graph].

            b. What are the effects on consumption ( C ), investment (I), and net exports (NX)?

c. What are the effects of an increase in foreign interest rate (i*) on domestic output (Y) and domestic interest rate (i)? [ show on the IS-LM graph].

d. What are the effects on consumption ( C ), investment (I), and net exports (NX)?

e. What are the effects of a contractionary fiscal policy abroad on the Canadian output and interest rate? [show on the IS-LM graph]

f. What are the effects pf a contractionary monetary policy abroad on the Canadian output and interest rate? [show on the IS-LM graph]

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