Exhibit: Shifting IS* and LM* Exchange rate, e LM LMLM IS IS IS Income, output, Y A small open economy with a floating exchange rate is initially in equilibrium at A with IS," Holding all else constant, if the government imposes a tariff on imports in order to protect domestic jobs, then the curve will shift to

Exhibit: Shifting IS* and LM* Exchange rate, e LM LMLM IS IS IS Income, output, Y A small open economy with a floating exchange rate is initially in equilibrium at A with IS," Holding all else constant, if the government imposes a tariff on imports in order to protect domestic jobs, then the curve will shift to

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section13.2: The Prices For International Transactions: Real And Nominal Exchange Rates

Problem 2QQ

See similar textbooks

Similar questions

In a large open economy, if an import quota is adopted, then: net exports remain unchanged, as imports and exports decrease by equal amounts, while the real exchange rate rises. net exports rise and the real exchange rate falls. net exports rise and the real exchange rate rises. net exports remain unchanged, as imports and exports decrease by cqual amounts, while the real exchange rate falls O O
Suppose that a firm is considering opening a plant on the moon, and the current exchange rate is 1,280 moon pieces (mp) per dollar. Also, the wage rate is 22,800 mp per hour. Suppose further that Question Viewer an produce 240 units per hour, while workers on the moon are expected to be able to produce 380 units per hour (the lower gravity level helps them work faster). a. The moon wage rate without considering productiviy is $ /hr (round your response to the nearest penny). b. The moon "relative" wage rate considering productivity is $/hr (round your response to the nearest penny). c. Suppose that the U.S. wage rate is $23.50 per hour. If the U.S. managers want to become the location of choice for production, and if they cannot lower their wage rate due to labor union agreements, what does the labor productivity in the U.S. need to become? The labor produtivity in the U.S. needs to be at least units/hr (round your response to one decimal place).
Controls on imports and/or foreign exchange dealing has been one of the arguments used in maintaining fixed exchange rate. What problems might arise if the government were toadopt this method of maintaining a fixed exchange rate?
In the Mundell-Flemming model with floating exchange rates, explain whathappens to aggregate income, the exchange rate, and the trade balance if aquota on imported cars is implemented. Examine what would happen ifexchange rates were fixed rather than floating?
A can of soda costs $1.25 in the United States and25 pesos in Mexico. What is the peso–dollar exchangerate (measured in pesos per dollar) if purchasingpower parity holds? If a monetary expansion causesall prices in Mexico to double, so that a soda nowcosts 50 pesos, what happens to the peso–dollarexchange rate?
Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
A can of soda costs $1.25 in the United States and 25 pesos in Mexico. What is the pesos-dollar exchange rate(meaured in pesos per dollar) if purchasing-power parity holds? If a monetary expansion caused all prices in mexico to double, so that soda rose to 50 pesos, what would happen to the peso-dollar exchnage rate?
a. If the exchange rate changes from $1.70 per British pound (₤1) to $1.68 per ₤1, has the pound (₤) appreciated or depreciated? Has the dollar appreciated or depreciated? b. What happens to the ₤-price that British residents pay for a $500 U.S. export good due to the exchange rate change above? c. What happens to the $-price that U.S. residents pay for a ₤1200 import good from Britain? d. How do these changes affect the economic welfare of U.S. exporters and U.S. importers? 2. a. If the exchange rate changes from $1.70 per British pound (₤1) to $1.72 per ₤1, has the pound (₤) appreciated or depreciated? Has the dollar appreciated or depreciated? b. What happens to the ₤-price that British residents pay for a $500 U.S. export good due to the exchange rate change above? c. What happens to the $-price that U.S. residents pay for a ₤1200…
A case study in the chapter analyzed purchasingpower parity for several countries using the pricc ofBig Macs. Here arc data for a few more countries: a. For each country, compute the predicted exchangerate of the local currency per U.S. dollar. (Recallthat the U.S. price o( a Big Mac was $4.93.)b. According to purchasing-power parity, what is thepredicted exchange rate between the Hungarianforint and the Canadian dollar? What is the actualexchange rate?c. How well docs the theory of purchasing-powerparity explain exchange rates?
Consider an economy with a floating exchange rate that also allows borrowing from or lending to other countries. Assuming that the economy is in a recession, what are the likely effects of a reduction in the interest rate? Select all that apply. O. Exports increase. O. Government saving increases. O. The currency depreciates. O. Planned investment spending increases.
Q 1Using the DD-AA model, explain the effects of temporary fiscal and monetary changes performed by a domestic country listed below. For each change, pro- vide diagrammatic explanation and comment on what happens to the nominal exchange rate (under a floating exchange rate regime), domestic output, and domestic CA (current account). (a) Tax raise. (b) Lower domestic money supply. Question 2 For each of the fiscal and monetary changes listed in Question 1, describe one fiscal or monetary policy aiming to maintain full employment level. For the policy you pick, provide a diagrammatic explanation using DD-AA model and comment on what happens to the nominal exchange rate, domestic output, and domestic CA as a result of the policy you choose.
A senator renounces his past support for protectionism: "The U.S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidae US. exports instead, we can reduce the deficit by increasing our competitiveness. Shew the effect of an export subsidy on the market for foreign exchange Demand Bupply benand Quantiy of Dotars Quantity of Dollars True or False: The U.S. real exchange rate depreciates as a result of this export subsidy. O True O False The export subsidy leads to in the trade deficit.