Draw the initial equilibrium for the domestic economy in the IS-LM-IP diagram. Then, draw the new equilibrium of the domestic economy after sanctions are imposed. (For this question only, assume) Foreign output Y*and interest rate i* are fixed.
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Draw the initial equilibrium for the domestic economy in the IS-LM-IP diagram. Then, draw the new equilibrium of the domestic economy after sanctions are imposed. (For this question only, assume) Foreign output Y*and interest rate i* are fixed.
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- The Jamaican government is contemplating implementing a tariff for imported goods. Consider the Mundell Fleming - IS-LM Analyses with the exchange rate (e) on the vertical axis instead of interest rates (r) and the LM curve is perfectly inelastic. (a) Assume you are in an open economy with floating exchange rates. With the aid of carefully labeled diagrams, use the Mundell Fleming - IS-LM Analyses to illustrate the impact of an increase in tariffs on the exchange rate e, output Y. Explain your answer thoroughly. (b) Assume you are in an open economy now with fixed exchange rates. With the aid of carefully labeled diagrams, use the Mundell Fleming - IS-LM Analyses to illustrate the impact a tariff on the exchange rate e, output Y. Explain your answer thoroughly. (c) Which of the Two exchange rate regimes are better considering the results form parts (a) and (b), explain?Q2-9 The shape of the curve that shows the effect of currency depreciation upon a country's current account balance over time (with the curve itself being known as the _____) reflects the fact that short-run demand elasticities are sufficiently ______ than long-run elasticities.(Ignore the negative sign on the elasticities.) Select one: a. J curve / lower b. J curve / higher c. supply curve of foreign exchange / lower d. supply curve of foreign exchange / higherThe DD-AA model to the right shows an economy's short-run equilibrium at point 1. Note: 'E' = Es/E: Suppose the government imposes a temporary tariff on all imports. Exchange Rate, E Using the line drawing tool, show the impact of this commercial policy. Properly label this line. Carefully follow the instructions above and only draw the required object. DD1 DD2 According to your graph, the domestic economy will experience E 1 A. a rise in output and a currency depreciation. B. a rise in output and a currency appreciation. Now suppose that with the passage of time it becomes increasingly clear that the tariff will be permanent. This will induce participants in the foreign exchange market to revise their expectations. More specifically, the expected future exchange rate, E°, will decrease. AA1 In the DD-AA model, this revised expectation of the future exchange rate will cause y1 Output, Y O A. a rightward shift in the DD schedule, and thus a reinforcement of the effects produced by the…
- Consider an open economy operating under fixed exchange rates. Using the goods market equilibrium condition, illustrate the effect of an increase in the foreign interest rate i * on domestic output and net exports. Explain and give economic intuition for your answer.Macmillan Learning The diagram shows the market equilibrium exchange rate between the South African rand and the U.S. dollar (USD). Recently, due to a shift in global demand, South African exports have decreased. Shift the demand and supply curves as appropriate. Exchange rate (USD per rand) X Quantity of rand Supply Demand As a result of the change in the exchange rate, South Africa's current account balance will rise, and its financial account balance will fall. both South Africa's current account balance and its financial account balance will rise. both South Africa's current account balance and its financial account balance will fall. South Africa's current account balance will fall, and its financial account balance will rise.U S foreign exchange intervention is sometimes done by an Excha U.S. foreign exchange intervention is sometimes done by an Exchange Stabilization Fund, or ESF (a branch of the Treasury Department), which manages a portfolio of U.S. government and foreign currency bonds. An ESF intervention to support the yen, for example, would take the form of a portfolio shift out of dollar and into yen assets. Show that ESF interventions are automatically sterilized and thus do not alter money supplies. How do ESF operations affect the foreign exchange risk premium? U S foreign exchange intervention is sometimes done by an Excha
- "Analyze the impact of a significant increase in international oil prices on a country's macroeconomic indicators such as inflation, GDP growth, and current account balance. Consider the perspectives of both oil- importing and oil-exporting countries. How might the respective governments and central banks respond to stabilize their economies and mitigate any adverse effects?"Assume a trade neutral position at the start. Assess the simultaneous impact of the following on the world interest rate and trade balances of both economies: i) A new production technology in the ROW economy ii) Increase in Investments in Home Assume that the effect on Net Exports of ROW is more pronounced.Consider the goods market for a small open economy, where e is the real exchange rate, X are exports, IM are imports and Y* is foreign income., C- 268 + 0.55YD X= 0.18Y - 107e 1=0.15Y - 786 I G= 930 T= 1000 IM = 0.7Y + 113e Y=3749 i= 0.01 (1%) e= 1 Claculate the level of equilibrium output and the trade balance in this economy: OA. Y=1117.96; NX = -307.35 OB. Y= 1094.96; NX= -311.65 OC. Y= 1076.09; NX= -303.78 OD. Y= 1136.26, NX = -317.95
- Answer the given question with a proper explanation and step-by-step solution. Suppose that εD = 0.70 and ε_D^F = 0.50 for a given country: Suppose that the foreign currency price of this country’s exports falls by 18% following a devaluation. What will happen to the quantity of exports?Everything else the same, if the Brazilian real depreciates, that is expected to increase the Brazilian exports. True. False.Question 2 Consider an economy that lasts for two periods, period 1 and period 2. Let T B1 denotes the trade balance in period t, CA1 the current account balance in period 1, and B*1 the country’s net international investment position at the end of period 1. Let r denote the interest rate paid on assets held for one period. Assume net international payments to employees, net unilateral transfers, and valuation changes are always equal to zero, so that in period t = 1, 2: CAt =rB*t-1 =TBt (1) and CAt = B*t − B*t-1 (2) A) Which conditions are needed to show that B*2 = 0? B) Suppose that the country runs perpetual trade deficits. What can you tell about the country’s initial net foreign asset position? Justify your answer. C) If the country starts period 1 with no debt or assets, what can you say about the current account in periods 1 and 2?