Assume that for an economy the Marshall-Lerner condition does not hold, and further, elasticities are such that the depreciation of the domestic currency actually worsens the current account balance. Also assume that the economy is operating under flexible exchange rates. Under these conditions discuss the effects of these on: 1. The shape (slope, direction etc.) of the BP curve. 2. Response of the BP curve to a currency depreciation, or appreciation. 3. Response of the IS and LM curves to a currency depreciation, or appreciation. 4. Response of the economy to an expansionary fiscal policy action under relative capital mobility. (BP curve flatter than LM) 5. Response of the economy to an expansionary fiscal policy action under relative capital immobility. (BP curve steeper than LM)

Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. Both countries have a zero current account balance initially. When answering the following questions, clearly label the lines and show the changes in the graph provided below. Give an intuitive explanation for the effects in each case. b-What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if home expected future marginal productivity of capital increases? c- What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if foreign country experiences a temporary adverse supply shock?

This is not a writing assignment, this is a multiple-choice question Which of the below statements about international exchange rates and PPPs (Purchasing Power Parity) would you consider to be INCORRECT?   Group of answer choices The PPP only focuses on internationally tradable items, while the exchange rate has a broader focus and includes both internationally tradable and items that are not internationally tradable.   Exchange rates include only the values of internationally tradable items, while the PPP includes both internationally tradable items as well as those which are not internationally tradable items but are used by people in different countries.   The rate at which one currency can be exchanged for another is the exchange rate.   If $25 can purchase a bundle of goods in the U.S. and if a comparable bundle of goods will cost 750 rubles in Russia, then the PPP between the U.S. dollar and the Russian ruble would be $25=750 Russian rubles.

Exchange Rate Regime a. Do you agree with the following statements? Explain your responses briefly by using relevant open economy models/equations. i) In the Short Run, a flexible exchange rate regime seems to be less attractive than a fixed exchange rate regime ii) In the Medium Run, the economy with a flexible exchange rate regime will generate higher levels of output compared to when it operates under fixed exchange rate regime b. Consider an open economy with a flexible exchange rate. Suppose there is a 10% increase in the money stock and assume that it increases the price level by the same percentage in the medium run. If the real exchange rate and the foreign price level are unchanged in the medium run, what must happen to the nominal exchange rate in the medium run?