Consider the open-economy short run model. Suppose that the sensitivity of investment to interest rates is bibi =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.

How do fluctuating exchange rates benefit MNCs and how do they affect them negatively? Give an example of both.

Consider the relationship among exchange-rate changes, aggregate demand, and monetary policy. Assume we begin in a situation with real GDP equal to Y∗.Y*. Suppose the world price for raw materials rises because of growing demand for these products. Given that Canada is a net exporter of raw materials, what is the likely effect on Canadian aggregate demand? Show this in an AD/AS diagram (assuming no change in the exchange rate). Suppose instead that there is an increase in the demand by foreigners for Canadian financial assets such as government bonds. What is the direct effect on Canadian aggregate demand? Show this in an AD/AS diagram (assuming again no change in the exchange rate). Both of the shocks described above are likely to cause an appreciation of the Canadian dollar on foreign-exchange markets. As the Canadian dollar appreciates, what are the effects on aggregate demand in part (a) and in part (b)? Show these “secondary” effects in your diagram and explain. Given your…

Suppose that a vaccine manufacturing company owned entirely by U.S. citizens opens a new facility in Canada. Answer all three parts below. In each case, carefully explain your answer. a) What sort of foreign investment would this represent? b) What would be the effect of this investment on current Canadian Gross Domestic Product (GDP) and U.S. GDP? c) What would be the effect of this investment on future per capita incomes in Canada?