Question

Use the Mundell-Fleming model to examine the effects - for case
of a small open economy. **But allow for the assumption that
in the money demand equation, price P depends on domestic
production price (assumed fixed) and the price of imported
goods.** Show on a diagram how the IS and LM curves shift if
there is an exchange rate appreciation, and examine with drawing
the effects in this model of an increase in government spending
with floating exchange rates under no capital mobility.

Answer #1

Use the Mundell-Fleming model to examine the effects - for case
of a small open economy. But allow for the assumption that
in the money demand equation, price P depends on domestic
production price (assumed fixed) and the price of imported
goods. Show on a diagram how the IS and LM curves shift if
there is an exchange rate appreciation, and examine with drawing
the effects in this model of an increase in government spending
with floating exchange rates under...

A small open economy is described by the following equations: C
= 50 + .75(Y - T)
I = 200 - 20i
NX = 200 - 50E
M/P = Y - 40i
G = 200
T = 200
M = 3000
P=3
i* = 5
b. Assume a floating exchange rate and constant expectations.
Calculate what happens to the exchange rate, the level of income,
net exports, and the money supply if the government increases its
spending by 50. Use...

Consider a small, open economy with perfect capital mobility and
a fixed exchange rate regime, whose domestic interest rate is
currently the same as the foreign
interest rate. Suppose that it adopted the USD as its official
currency.
a. Draw the IS-LM diagram for this nation at its general
equilibrium point E1, with equilibrium income level
Y1 and domestic interest rate r1, what
happened if central bank of this country expanded its money supply,
please show the changes in the...

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...

Home is a small open economy with perfect (financial) capital
mobility. Initially, it is in its long-run equilibrium and domestic
assets and foreign assets are prefect substitutes. Recently, the
United States reformed its tax system and lowered taxes. Many
believe that this kind of development might have negative impacts
on the Home economy and people worry that the negative impacts
include the following:
Change the world interest rate (Hint: you need to figure out
what happens to the world interest...

Use the model of the small open economy (need to show the
graphs) to predict what would happen to the trade balance, the real
exchange rate and the nominal exchange rate in response to each of
the following:
A tax reform increases the incentive for businesses to build
new factories
The introduction of a stylish new line of Toyotas makes some
consumers prefer foreign cars over domestic car

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...

IS-LM Model (Closed Economy)
The following equations describe a small open economy.
[Figures are in millions of dollars; interest rate (i) is in
percent]. Assume that the price level is fixed.
Goods Market
Money
Market
C = 250 +
0.8YD
L = 0.25Y – 62.5i
YD = Y + TR –
T
Ms/P = 250
T = 100 + 0.25Y
I = 300 – 50i
G = 350; TR = 150
Goods market equilibrium condition: Y = C + I...

Assume that the world works according to the Classical model. In a
small open economy, output is produced according to a Cobb-Douglas
production function, consumption is equal to C=40+0.6(Y-T) and the investment
function is I=280-10r. You
know that the output produced is Y=900, government spending is
G=150, taxes are
T=90 and that the world
real interest rate is 4% (r*=4).
In
all the questions below, make sure to explain your answers and show
all your work.
a.
Compute: i. Private...

13. Suppose there is an increase in government spending in a
closed economy. In medium-run such a fiscal policy will cause:
none of the other answers is correct.
ambiguous effects on the neutral real interest rate
the nominal wage to rise
no change in the neutral real interest rate
the neutral real interest rate to rise
14. Suppose the economy is initially in the steady state.
According to Solow model without technological progress, an
increase in the depreciation rate (δ)...

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