Question

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]

Answer #1

1- Suppose fiscal policy makers pass a budget that cuts taxes in
the current period and are expected to cut taxes in the future. Use
the IS-LM model to illustrate graphically and explain the effects
of this policy on current output and the current interest rate. 3-
What are the differences between the real exchange rate and nominal
exchange rate? 4- Explain the difference between gross domestic
product and gross national product 3- What are the differences
between the real...

Consider the following short-run model of an open economy:
Y = C+I+G+NX
C = 100+(2/3)(Y-T)
I = 200
NX = X-(1/E)IM
X = (1/E)400
IM = (1/6)E Y
Domestic and foreign prices are constant with
P=P*=1. Thus, the real exchange rate is equal
to the nominal rate E.
The policy makers want to achieve the following targets for
output, consumption and net exports: YT=1200,
CT=780 and NXT=0. Show how these targets
can be achieved using government consumption (G), taxes
(T)...

Consider the following economy (with flexible exchange rate
system):
• Desired consumption: Cd = 300 + 0.5Y − 2000r
• Desired investment: Id = 200 − 3000r
• Government purchases: G = 100
• Net export: NX = 350 − 0.1Y − 0.5e
• Real exchange rate: e = 20 + 1000r
• Full employment: Y ̄ = 900.
• Nominal money stock: M = 4354
• Real money demand: L = 0.5Y − 200r
(a) Find the equations for...

Analyze the short-run effects on the Canadian economy of each of
the following events using aggregate expenditure (AE) and aggregate
demand and supply (AD-AS) diagrams. In each case, identify the
cause of any shift or movement along AE, AD, and/or AS and note the
effect on national income (Y) and the price level (P).
(a) A change in tastes leads Canadian consumers to transfer
their video spending from domestic cable TV services to domestic
video streaming services. [4]
(b) In...

1. Which of the following best describes the effects of an
increase in real interest rates in Canada?
a.
It discourages both Canadian and foreign residents from buying
Canadian assets.
b.
It encourages both Canadian and foreign residents to buy
Canadian assets.
c.
It encourages Canadian residents to buy Canadian assets, but
discourages foreign residents from buying Canadian assets.
d.
It encourages foreign residents to buy Canadian assets, but
discourages Canadian residents from buying Canadian assets.
____ 2. Which of
the following...

Use the IS-LM model to determine the effects of each of the
following on the general equilibrium values of the real wage,
employment, output, the real interest rate, consumption,
investment, and the price level.
a. There’s increased volatility in the prices of both stocks and
bonds
b. Fiscal policy decisionmakers send out stimulus checks to most
(or all) American households

The following equations are those for a small open economy,
which takes the world real rate of interest ( r w
) as given. In particular:
M/P = 24 + 0.8Y - 400r
C =2+0.8(Y-T) - 200r
I =30 - 200r
NX =24-0.1Y - 2e
Y =C +I +G+NX
You are given the following values for various variables:
rw = 0.05; M/P = 100;G
= 10 and the budget is balanced. Using the model, find the values
for Y, e...

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,TB. assuming the government
responds to maintain a fixed ex-change rate.
A. Foreign income decreases.
B. Investors expect a depreciation of the home currency.
C. Private consumption increases exogenously..
D. The money demand increases.

Use the IS-LM-FE model to determine the effects of each of the
following on the general equilibrium values of the real wage,
employment, output, the real interest rate, consumption,
investment, and the price level.
C. An influx of working age immigrants increases labor supply
(ignore any other possible effects of the increased population
( my question is this, why should price level decrease? it says
that for LM curve to shift down, price level should fall. but I
wonder what...

Consider a small open economy given by the
following:
Consumption Function: Ct = 17.2 + 0.7(Yd)t
Investment Function: It = 24 -100rt
Real Demand for Money: Lt = 6Yt-1400r
Net Exports Schedule: NXt = 8 – 4et
Government Spending: G0 = 36
Tax Collections: T0 = 36
World Interest Rate: r0 = 0.15
Price Level: P0 = 4
Domestic Money Supply: M0 = 2520
Assume further that the economy is currently at the
long-run equilibrium.
(10 points) Graph the situation...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 9 minutes ago

asked 24 minutes ago

asked 24 minutes ago

asked 26 minutes ago

asked 26 minutes ago

asked 29 minutes ago

asked 29 minutes ago

asked 38 minutes ago

asked 45 minutes ago

asked 52 minutes ago

asked 55 minutes ago