National savings of a Classical small open economy is 120, Investment is 20, and the net export schedule is: NX = 200 - 50*(real exchange rate). If trade restrictions shift the net export function to NX = 300 - 50*(real exchange rate), in the new situation:

Consider the following open economy. The real exchange rate is fixed and equal to 1. Consumption is given by C = 50 + 0.5(Y – T), investment is I = 20, taxes are T = 10, and the government's budget is balanced. Imports and exports are given by I M = 0.2Y and X = 0.02Y where Y is foreign GDP. (a) Solve for the equilibrium Y in the domestic economy for any given Y*. (b). What is the government purchases multiplier in this economy? If we were to close the economy -- so exports and imports were identically zero -- what would the multiplier be? Explain the differences (if any) between the open and closed economy multipliers. (c) Suppose that foreign GDP is 10 times as large as domestic GDP. What is equilibrium domestic GDP? What is equilibrium foreign GDP? If foreign economy is hit by an adverse demand shock and its GDP decreases by 10%, by how much does domestic GDP fall? (d) Assume that the government in the domestic economy wants to restore the level of domestic GDP to its level before…

Based on the Exchange rates above, Which of the following is true? A)More pounds are needed to buy a dollar, so the dollar is appreciating B)The dollar is less expensive in pounds and is depreciating C)The dollar is growing stronger against the pound D)The dollar is more expensive in pounds and is appreciating Year 2014 2015 2016 US $ 1$ 1$ 1$ British Pound .85 .70 .60

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Purchasing Power Parity (PPP) implies that the level of exchange rates adjusts so that identical goods cost the same amount in different countries.  In many cases, the PPP is violated.  Briefly explain drawing on the assumptions of absolute PPP. You are the trade advisor to a multinational company with an investment of US1,500,000.  The following are the rates quoted on the FOREX market. US $ to Euro 1.22/€ US$ to pounds 1.84/£ Euros to pounds 1.54/£ Calculate the cross rate and determine if a profit opportunity exists.  What is the value of that profit if you decide to trade with the US$1.5 million?

As of today, the spot exchange rate is ¥0.80 / S and the rates of inflation expected to prevail for the next year in Japan is 9 % and 10 % in the US. What is the forecast for what the exchange rate will be in one year if the PPP holds?

Consider a small open economy with perfect capital mobility and a flexible exchange rate. Suppose that net capital outflow (NCO) is negative at the world interest rate. Use a two-panel diagram to explain the following a) What is the is the effect of an increase in world interest rate on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? b) What is the is the effect of an increase in the government budget surplus on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? c) What is the is the effect of an increase in the government budget deficit on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? d) What is the is the effect of imposing an import quota on (į) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports?

Under a fixed exchange rate regime, a tax increase will: require a decrease in the money supply. cause a reduction in Y*. cause an increase in government spending cause an increase in Y. cause no change in the investment.

Suppose in the goods market equilibrium of an open economy, saving is $6 billion, and investment is $8 billion. Assume there is no measurement error. Then capital and financial account balance is equal to X -$2 billion $0 billion $4 billion $2 billion

Assume that the LM curve for a small open economy with a floating exchange rate is givenby Y = 200r – 200 + 2(M/P), while the IS curve is Y = 400 + 3G – 2T + 3NX – 200r. The function for NX is NX = 200 – 100e, where e is the exchange rate. The price level (P) is fixedat 1.0. The international interest rate is r*= 2.5 percent.a. Using the LM curve, find the equilibrium level of Y in the small open economy, if M =100.b. Given this value of Y, if G = 100 and T = 100, what must be the equilibrium value of NX?c. If this value of NX is to be achieved, what must be the equilibrium exchange rate, e?