Consider the following model for a small open economy. Using this model, and rounding to 3 decimal places, please answer all questions to this CML Y = 750 – s – 1000i + 5e (1) IS Equation %3D i = 0.5 (1+ s) + 0.001Y – 0.0054 (2) LM Equation %3D i = ij = 0.05 (3) BP=0 locus Let foreign prices be fixed at P = 1 and the nominal exchange rate e be flexible. Question 1: Assuming that this is a classical economy with full flexible domestic prices and output is fixed at the full employment level Y=Yp= 2000. Also assume that there is no COVID (s-o) and the benchmark for nominal money supply is M-- s0. Solve for P

Consider the following model for a small open economy. Using this model, and rounding to 3 decimal places, please answer all questions to this CML Y = 750 – s – 1000i + 5e (1) IS Equation %3D i = 0.5 (1+ s) + 0.001Y – 0.0054 (2) LM Equation %3D i = ij = 0.05 (3) BP=0 locus Let foreign prices be fixed at P = 1 and the nominal exchange rate e be flexible. Question 1: Assuming that this is a classical economy with full flexible domestic prices and output is fixed at the full employment level Y=Yp= 2000. Also assume that there is no COVID (s-o) and the benchmark for nominal money supply is M-- s0. Solve for P

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter6: Managing In The Global Economy

Section: Chapter Questions

Problem 12E

See similar textbooks

Similar questions

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
QUESTION 10 In a large open economy, the home country's saving and investment equations are: sd=200+ 1400r" and Id= 300– 400r" The foreign country's saving and investment equations are: sd- 50+ 600rw and Id=75– 100rw Calculate the current account balance in the foreign country. Note: Type in your answer approximated to two decimal points, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard will automatically delete it and you should not do anything about it.
Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. Initially, the supply curve for USD is 100+e, bln dollars per week and the demand curve is 140 - e„bln dollars per week. There is a financial crisis in Mexico and the government fears that it may lead to capital outflows that would make the crisis even worse. They decide that if Mexican Peso depreciates by more than 20%, the central bank will step in and fix the exchange rate. As the crisis unfolds the demand for the U.S. dollars increases to 142-e and the supply of dollars falls to 99+ e N' How should the central bank of Mexico react to this change? O A. start selling U.S. dollars to support the exchange rate O B. start buying U.S. dollars to support the exchange rate O C. reduce money supply in the economy O D. do nothing QUESTION 4 bln dollars per week and the demand curve is 155 -e bln dollar Using information from problem 3, suppose that the financial crisis worsens and now the supply curve for USD is 91+e.…
If the foreign price level increases by 4%, and the domestic price level increases by 17%, by what percent should the exchange rate of domestic currency per foreign currency increase, given relative PPP holds? Your answer should be an integer with a % sign assumed to follow (e.g., if you wish to say 48 percent, write 48). The percent increase in the exchange rate should be
A country's economy is described with the following parameters: Y=9000, G=1500, T=500, C=300+(1/2)(Y-T), I=2500-30r, NX=1200-150Excangerate, and r is 11 (world interest rates). Find equilebrium exchange rate approximately for this country. Select one: a. 5.80 b. 2.80 C. 7.13 d. 8.00 e. 9.80
Suppose for Home: Ms=2169, Md/P=5767-99865*R, P=2 Suppose for Foreign:Ms=2655, Md/P=7099-98140*R, P=1 Suppose Absolute PPP holds. What is the expected exchange rate Ee?
QUESTION 10 In a large open economy, the home country's saving and investment equations are: sd=200+ 1400r" and Id=300 – 400r" The foreign country's saving and investment equations are: sd= 50+ 600rW and Id=75– 100r" Calculate the current account balance in the foreign country. Note: Type in your answer approximated to two decimal points, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard will automatically delete it and you should not do anything about it.
D6) Suppose that domestic price level for a basket of goods is given by P = 311 in domestic currency, and the foreign price level for the same basket of goods is given by P* = 5 in foreign currency. What should the exchange rate of domestic currency per foreign currency be according to absolute purchasing power parity? Round to the nearest whole number.
11 Use the IS-LM-UIP model for an open economy with flexible exchange rates as a useful tool in discussion of domestic macroeconomic effects of high electricity prices, including petrol and diesel prices, and how this affects the purchasing power and economy of a country when electricity prices are 7-10 times normal
Evaluate the usefulness of relative power purchasing parity (PPP) in predicting movements in foreign exchange rates on: a. Short-term basis (for example, three months). b. Long-term basis (for example, six years).
An open economy with absolute mobility of capital is described as follows: consumption function is given as C = 50 +0, 8(Y - T), where Y is output, and T is net taxes, Investment function is given as I = 20-10i, where I is nominal interest rate. Government spending G 22-4E+0, 3Y where E - nominal exchange rate (price of foreign currency in terms of domestic currency). For one unit of foreign currency, you can get 3 units of domestic currency. The real money supply is M* /P= 50. The demand for real money is described by the following function: L(Y,i) = 0, 5Y-10i. 20, tax Tr = 10, export Ex = 6E +10, import Im %3D Find BP curve, if the economy is initially in the internal and external equilibrium. Write an equation for BP without spaces and % signs
Assume the spot exchange rate is ZAR23 per £1. (i) Assuming British interest rates are 2% and ZAR interest rates are 8%, calculate the one year forward price on ZAR/£ and what parity relationship does this illustrate? (ii) Calculate how many percent the £ has appreciated or depreciated relative to ZAR (iii)Had we estimated the future spot exchange rate using the same formula as we used in a) but by using inflation rates instead of interest rates, what would this parity relationship be called?