This preview shows page 1. Sign up to view the full content.
Economics 110B
Practice Questions for Chapter 20
Questions
1)
Why is the IS curve for an open economy with flexible exchange rates downward sloping?
2)
What is the IP curve and why is it upward sloping?
3)
Suppose the domestic and foreign interest rates are both initially equal to 3%. Now suppose the
domestic interest rate rises to 5%.
What effect will this have on the exchange rate?
What must
occur for the interest parity condition to be restored?
4)
Suppose the domestic and foreign interest rates are both initially equal to 4%.
Now suppose the
foreign interest rate rises to 6%.
What effect will this have on the exchange rate?
What must occur
for the interest parity condition to be restored?
5)
Explain what effect each of the following events will have on the IS curve in a flexible exchange
rate regime: (1) an increase in foreign output; (2) a reduction in the foreign interest rate; and (3) an
increase in the domestic interest rate.
6)
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 05/01/2011 for the course ECON 110B taught by Professor Peters during the Spring '07 term at UCSD.
 Spring '07
 Peters
 Macroeconomics, Interest Rates

Click to edit the document details