4. Use the Mundell-Fleming model to predict what would happen to real GDP, the exchange rate, and net exports under both floating and fixed exchange rate regimes in response to each of the following shocks. Your answers should be in the form of fully-labeled graphs, where any curve shifts and new equilibrium are clearly shown. (a) Consumer confidence in the economy is falling, so consumers start to spend less. (b) Toyota designed a line of stylish new cars, making consumers prefer foreign cars over domestic cars. (c) Banks double the number of ATMs (automatic teller machines) around the economy, reducing the demand for money.

4. Use the Mundell-Fleming model to predict what would happen to real GDP, the exchange rate, and net exports under both floating and fixed exchange rate regimes in response to each of the following shocks. Your answers should be in the form of fully-labeled graphs, where any curve shifts and new equilibrium are clearly shown. (a) Consumer confidence in the economy is falling, so consumers start to spend less. (b) Toyota designed a line of stylish new cars, making consumers prefer foreign cars over domestic cars. (c) Banks double the number of ATMs (automatic teller machines) around the economy, reducing the demand for money.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: A Macroeconomic Theory Of The Open Economy

Section: Chapter Questions

Problem 7PA

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1. Know how to demonstrate movements of exchange rates using supply and demand graphs.
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Hi can you please help with calculations/explanations of the below :) 1. During the Great Depression, countries which had a policy of competitive devaluation (or ‘beggar thy neighbour’) increased net exports by lowering the value of their currency. Using a Mundell-Fleming model with a fixed rate, show the impact of a competitive devaluation without taking account of the output gap. (hint, the exchange rate is ‘fixed’ but only after an initial lowering of its value, which causes a positive NX shock) 2. What is the long run impact of the policy in (1) after taking account of the output gap. Prove that in the long run a competitive devaluation with a fixed rate gives the same long run result as a monetary expansion with a floating rate. What is this result called? 3. Suppose a country experiencing a lockdown has a fiscal expansion to partly compensate for a massive exogenous contraction in consumption. Assume it has a floating rate. Outline the transition to equilibrium and the final…