Macroeconomics plus MyEconLab plus eBook 1-semester Student Access Kit (6th Edition)

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Econ 304 Sonoma State University Fall 2007 Dr. Robert Eyler Homework #6: Due December 6, 2007 1. The difference between the spot and forward market for currency is large in explaining how exchange rates change. a. Define spot and forward exchange rates as discussed in class. b. Explain why we would expect the spot exchange rate to fall if the forward rate today were less than the spot rate today. c. If the difference between foreign and domestic interest rates increased, what should happen to both forward and spot exchange rates? Explain. d. State and explain the three positions an investor can take in a currency. 2. The addition of the EE curve to the IS-LM model completes the short-run macroeconomy. a. State the four assumptions of the IS-LM-EE model in equilibrium. b. Explain the difference between responsive and unresponsive capital flows both qualitatively and in terms of the EE curves slope with respect to the LM curve.
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