Econ 110B Ch20 Questions

Econ 110B Ch20 Questions - Economics 110B Practice...

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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)
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This note was uploaded on 05/01/2011 for the course ECON 110B taught by Professor Peters during the Spring '07 term at UCSD.

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