Macro 2. Tutorial 8.pptx - MACROECONOMICS II TUTORIAL 8 TAN...

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MACROECONOMICS IITUTORIAL 8TAN JIA ENNEIA170172TA HOU YIN EIA170171HO KAI YEEEIA170046WEN YIEIA170704LE XINYUEIA170729CUI YANEIA170730SORA TERANISHINEX180143
What does it means by international capital mobility?
How the international capital mobility affects a country balance of payment account?
4 quadrant diagram
Government policy & Elasticity of BPGovernment policies towards the capital flow will affect KA elasticity KA elasticity will affect BP elasticity
4 cases of capital mobility policies1.Completely blocked2.Partially allow (tend to strict)3.Partially allow (tend to moderate)4.Freely allowe : elasticity of BP curve
Question 2(a): What is BP curve?
BP curve is The Balance of Payment (BP),it represents the combinations of income and interest rates that yield equilibrium in the Balance of Payments (BOP)Higher national income tends to cause a current account deficit (because more spending on imports.)A higher interest rate tends to cause a capital account surplus.The higher the mobility, the flatter the curve.BP curve
(b) Explain the effect of an increase in domestic interest rate on BP curve.
rd>rfSupply more foreign currencyforeign reserve surplus (R↑ )Money supply increase (Ms↑)LM shift to the right (LM0 to LM1)Y increased in Y1, more far to YFUnemployment increaseFixed exchange rate
(c) What causes the BP to be perfectly elastic and perfectly inelastic and its implications?
BP: Perfectly Inelastic and Its ImplicationThe assumption of perfect capital immobility makes the BP schedule vertical.

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