a) graphically derive the IS curve ina small open economy. write downshift factors ofiS curve. graphicallyexplain the effect of any one of themon IS curve.b)underfixed exchange rate system and thelarge open ecomomy expansionaryfiscal policy is effective whilemonetary policy is ineffective.Do youagree with this statement.graphicallyexplain your point of view by usingMundell-Fleming model

The IS curve is downwards sloping to the right which indicates to the fact that the rate of…

a) graphically derive the IS curve in a small open economy. write down shift factors ofIS curve. graphically explain the effect of any one of them on IS curve. fixed exchange rate system and the large open economy expansionary fiscal policy is effective while monetary policy is ineffective.Do you agree with this statement.graphically explain your point of view by using Mundell-Fleming model b)under

a) graphically derive the IS curve in a small open economy. write down shift factors ofIS curve. graphically explain the effect of any one of them on IS curve. fixed exchange rate system and the large open economy expansionary fiscal policy is effective while monetary policy is ineffective.Do you agree with this statement.graphically explain your point of view by using Mundell-Fleming model b)under

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the federal government increases spending on national defense . Using Mundell - Fleming model for a small open economy , answer the following questions : a . How does it affect IS curve and LM curve ? explain why ? b . What are the changes in total output , exchange rate , consumption , investment and net exports of the economy ? explain why ? c . Draw Mundell - Fleming graph to demonstrate your answer ?
Figure 8-2 The vertical distance between points A and B represents a tax in the market. 12 11 10 9 8 7 4 3 2 1 个 Price A 05 1 15 2 25 3 35 4 45 5 a) $4. O b) $3. O d) Refer to Figure 8-2. The loss of producer surplus as a result of the tax is Supply $2. Demand $1. Quantity
KEYNESIAN OPEN-ECONOMY MODEL IN DYNAMICS This section contains questions about a Keynesian open-economy model: • Recall the static IS equation Y = C +I+ G+ X – M. In this section, we assume that the consumption, the investment and the government expenditure are parameters. The trade balance at year t (X – M) is a linear function of the exchange rate Q; and the income Y; such that: X – Mt = aQt – BY; – YYt-1 where a, B and Y are positive parameters. Derive the difference equation that describes the dynamic behavior of the income Y. | What is correct about the dynamic behavior of the model? Select one or more: Select one or more: The model implies that an increase in the income this year will immediately worsen the net export, keeping other things constant. The model implies that an increase in the real exchange rate will be followed by a series of income rises until a new equilibrium is reached. O It makes sense to assume that 2 < 1. 1+3 The model implies that the immediate multiplier…
Assume that prices are sticky in the short run. Use the MM-FX model to demonstrate the effects of each event below. After explaining your reasoning, answer clearly whether there is exchange rate overshooting in each case. In addition, display the time paths of the dollar interest rate, the euro interest rate, and the dollar-euro exchange rate. a) The US central bank decreases money supply by 5% and reverses the policy in three months. b. The US central bank decreases money supply by 5% and reverses the policy in three months. At the same time, US output declined by 2% over the same three-month period. Assume that the elasticity of money demand with respect to output is 1. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Imports and short-run output: In addition to depending on the exchange rate (and therefore on the interest rate), imports may depend on short-run output: when the economy is booming, consumers tend to demand more foreign goods. To incorporate this result into our short-run model, suppose the new net exports equation is Derive the IS curve with this new equation, and explain how it differs from the standard IS curve in the short-run model.
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. Banks double the number of ATMs (automatic teller machines) around the economy, reducing the demand for money.
Consider the open-economy short run model. Suppose that the sensitivity of investment to interest rates is b'ib¯i =0.38, and the sensitivity of net exports to interest rates is b¯nxb¯nx=0.13. If the foreign interest rate rises by 2.52 percentage points and the domestic interest rate rises by 0.22 percentage points, by how much does short-run output change? Report your answer in percentage points to 2 decimal places.
2.2) Explain with an example why the current account and financial account balances must exactly offset each other. Provide example with illustration.
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Exercise 3 The IS-LM model extension to the open economy is known as the Mundell-Fleming model. The equilibrium in the goods market (IS) is given by Y = C+1+G+ NX The LM is given by i= i. And the interest parity relation given by: E=E° (1+i)/(1+i*) What is the impact of a reduction in domestic taxes on output, the domestic interest rate and the nominal exchange rate? а. b. Now assume there is a peg in the nominal exchange rate, such that the country is in a fixed exchange rate regime. How does your answer in (a) change in this case? С. Going back to the flexible exchange rate regime, what is the impact of an increase in domestic interest rate on output and the nominal exchange rate? d. In an open economy, is the impact of a change in the domestic interest rate on output larger or smaller than in a similar one which is a closed economy?
Define and derive the monetary approach to exchange rates. Why is it called a long-run model? Don't copy. I ll rate
Consider an IRP AS/AD Model with sticky wages initially with yo = 100. Suppose we know that an increase in the money supply in a flexible exchange rate regime will result in y3 = 120. If monetary authorities took steps to maintain the exchange rate fixed at eo, then the most like outcome for real GDP would be closest to Group of answer choices 100 115 120 125