In the short run of a model with sticky prices, a reduction in the money supply raises the nominal interest rate and appreciates the currency. In this case the country's expected real interest rate will In addition, the real exchange rate, after initially will subsequently The latter movement of the real exchange rate satisfies the real interest parity condition which indicates that a country's currency will be expected to undergo a real depreciation when its real interest rate ▼real interest rates elsewhere.

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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?

Determine the impact of productivity differentials (across tradable and non-tradable sectors) on the real exchange rate and state the main predictions of the Balassa-Samuelson model.

To address a persistent current account deficit in the balance of payments, a government could undertake measures such as: A) Discouraging foreign investment B) Reducing government spending on social services C) Devaluing the national currency to make exports more competitive increasing the importar iuxtry goods in the ance of any

What determines the real exchange rate and what determines the nominal exchange rate in a small open economy with perfect capital mobility, fully employed factors of production, and flexible prices?

A small open economy with free capital mobility experiences a temporary adverse supply shock. This causes the world real interest rate to and the country's current account balance to remain unchanged; fall fall; fall remain unchanged; rise rise; rise

This is not a writing assignment, this is a multiple-choice question   Based on the discussion of these two ideas in this chapter which of the below statements 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.   Exchage 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 wil cost 750 rubles in Russia, then the PPP between the U.S. dollar and the Russian ruble would be $25=750 Russian rubles.

In the Mundell–Fleming model with fixed exchange rates; i) what happens to aggregate income, the exchange rate, and the trade balance when government increases spending or reduce taxes. ii) and, what would be the result if the exchange rate is floating? graphical explantion if possible please

Assume that the expected future exchange rate is unchanged and that the central bank holds the real money supply fixed. Draw an IS-LM-IP diagram to show the effect of the drop in consumer confidence. Label all axes and curves and mark all the values and equilibrium points appropriately.