In an open economy under flexible exchange rates and

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Chapter 13 / Exercise 5
Macroeconomics
Roger A. Arnold
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18.In an open economy under flexible exchange rates, and represented by the IS-LM-IP model, a tax increase will cause a reduction in which of the following in the short run? A) the exchange rate, E B) exports C) net exports D) all of the above E) none of the above
19.A common argument for fixed exchange rates is that they:
20.Assume that firms experience an increase in sales. We would expect that this increase in sales will cause:
21.Suppose policy makers want to reduce net exports and keep the level of output constant. Which of the following policies would most likely achieve this?
22.Suppose a country is pursuing a fixed exchange rate regime with imperfect capital mobility. The ability of that country to move its domestic interest rate while maintaining its exchange rate will depend on: A) the degree of development of its financial markets. B) the amount of foreign exchange it holds. C) the degree of capital controls. D) all of the above E) both A and B
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Macroeconomics
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Chapter 13 / Exercise 5
Macroeconomics
Roger A. Arnold
Expert Verified
Economics 110B Spring 2012 Dr. Maria Cândido5 PART II: Problems (67 points total) 1.(10 points) a.If individuals expect consumer confidence to decline over the next year, what will happen to the shape of the yield curve? Explain. b.“Given the Fisher hypothesis, an upward-sloping yield curve may indicate that financial markets are worried about inflation in the future.” True or False? Explain.
Economics 110B Spring 2012 Dr. Maria Cândido6 2.(8 points) “Depending on its effects on expectations, a fiscal contraction may actually lead to an economic expansion.” Do you agree or disagree with the above statement? Explain carefully and use graphical analysis to support your arguments.
Economics 110B Spring 2012 Dr. Maria Cândido7 3.(10 points) Consider two fictional economies, one called the domestic country and the other the foreign country. a.Given the transactions listed in (a) through (h), construct the balance of payments of the domestic country. If necessary, include a statistical discrepancy. (a) Domestic investors sold $225 of their holdings of foreign government bonds (b) The domestic country purchased $500 in oil from the foreign country (c) Foreign investors purchased $75 of domestic government bonds (d) Foreign tourists spent $125 on domestic beach resorts (e) Domestic business borrowed $325 from foreign banks (f) Foreign investors were paid $75 in dividends from their holdings of domestic stocks (g) Domestic residents gave $125 to foreign charities (h) Domestic investors received $25 in interest from their holdings of foreign bonds b.Is the domestic country a net borrower or a net lender? Justify.

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