a)
The graph of AD, SRAS, and LRAS that shows the equilibrium output and price level, labeled by Q1 and PL1 respectively, and the long run output as Qf.
a)
Explanation of Solution
The graph of the foreign exchange market that shows the effect on the value of YD would be shown as:
This graph shows the real
- In this graph PL1 is the
equilibrium price where demand and supply are equal and the equilibrium quantity is labeled by Q1. - Here, the long-run output is labeled with Qf
Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.
b)
The effect of an expansionary fiscal policy on graph.
b)
Explanation of Solution
Tax reductions, refunds, greater public investment, etc. all come under the expansionary fiscal policy that might boost discretionary government expenditure, injecting additional cash into the economy via government contracts. In this case, applying fiscal policy which is expansionary shifts the demand to the right or upward which also helps to remove recession in the economy.
Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.
c)
The graph of the foreign exchange market for the country’s currency (mina), relative to the country U dollar.
c)
Explanation of Solution
The graph of the foreign exchange market shows the effect on the market for the country’s currency (mina) in relation to the U dollar where r is the foreign exchange rate and q is the quantity of dollars
In this graph, the foreign exchange of mina is shown on the vertical axis and the number of dollars on the horizontal axis which means the value of a currency is influenced by supply for it rather than demand. A currency's exchange value rises in direct proportion to the level of supply. On the other hand, as a currency's supply declines, its value also declines.
Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.
d)
How the value of the currency (mina) can be affected by the change in output?
d)
Explanation of Solution
With the change in output or quantity, the exchange rate of mina is also affected as its supply of currency shifts to the right which shows an increase in supply increase in the foreign rate of the currency. Whereas, a decrease in the supply will diminish the rate of currency in the market. This happens because the supply of currency has a positive impact on currency mina.
Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.
Chapter 8R Solutions
Krugman's Economics For The Ap® Course
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