A flexible exchange rate economy, has C = 14 + .9YD, I= 10-r, MD = .1Y-r, G = 4, R = 10 +.1Y, MS = 5, e = 10-rand NX = 6-.01Y-.5P + e. A winter ice storm ASo = 5p rotates to AS1 = 2.5p. In your answers to below, assume that wages are sticky so that there will be no tendency for this economy to revert towards %3D %3D potential GDP. Provide labelled diagrams for AS/AD and NS/NAF to illustrate how prices and real GDP would a. respond to this shock. The central bank chooses to intervene and keep the exchange rate fixed at e = eo. Calculate and illustrate the change in money supply that will be required and how this policy response would affect y, p and r. Provide labelled diagrams for MD/MS and IRP to illustrate how interest rates and the exchange rate would be affected by this policy. b.

Define and derive the monetary approach to exchange rates. Why is it called a long-run model?   Don't copy. I ll rate

According to Big Mac Index 2012 provided by the Economists, A Big Mac costs $4.33 in the U.S. and 15.65 RMB in China. a. What should be the exchange rate S($/RMB) based on PPP? b. If the inflation rate in China will be 3% while the inflation rate in the U.S. will be 2% over the next year, what should be the future exchange rate S360($/RMB) based on PPP? c. If S($7RMB) indeed increases by 2%, what does it imply to the competitiveness of the U.S. exporters? d. The market exchange rate of S(RMB/$) is 6.29RMB/$ on October 3rd. Compared to the PPP-implied exchange rate, is RMB over-value or under value and by how much?

Economic theory suggests that in the long run, since money is neutral, the real exchange rate will be defined by the difference between home and foriegn inflation. Consider the Big Mac index. A. Consider the Euro Area, the UK and Brazil. Do the differences in inflation rates (you need to look these up) imply the extent of the undervaluation of the exchange rate? B. Find the Big Mac Index for 2018 and 2019. Do exchabge rates appear to be converging ot diverging? Provide an economic explanation for their behaviour.

5:44 PM A p N O filul 20.7 K/s K ECF515-D-1-2021-1.docx 17. With respect to a country having a fixed exchange rate, which of the following state ments is notcorrect? A. The fixed exchange rate system imposes strict discipline on the central bank, B. The economy is vulnerable to foreign but not domestic demand disturbances. C. The Taylor Rule schedule is irrelevant. Q Shifts in world interest rates can pose a risk to the sustainability of the fixed excha nge rate. 18. The Mundell-Fleming framework studies (A) -, (B) orld with (C)__ financial markets and (D) _capital mobility. economies in a w A. (A) small; (B) open; (C) integrated; (D) free B. (A) large; (B) open; (C) integrated; (D) free C. (A) small; (B) mercantilist; (C) integrated; (D) free D (A) large; (B) open; (C) restricted; (D) free 19. Which of the following policy options would simultaneously increase interest rates and d ecrease output? A. The Bank of Zambia sells bonds through open market operations. B. he Government…

Which of these graphs shows how a contractionary monetary policy at Home affects its exchange rate? EHIF) COUP) A B ERAM LY ERA LY) ERRIF) MP с ERR ERRIF) MP ERR E(H/F) C(H/F) ERRH) L B #. 40XX) ERAH) ERRIF) D ERR ERRF) Ma ERR

Assume Switzerland has a one-year interest rate of 3% and that of Ghana is 16%. If the International Fisher Effect (IFE)holds, what would you forecast for the Swiss franc exchange rate with respect with the cedi be for a one-year period? Assume that the initial exchange rate is 5000cedis to a Swiss franc.

In general, economists divide the world into two types of exchange rate systems: A fixed and floating OB. liberal and conservative O Clong run and short run OD. speculative and risk averse

Suppose that the price of the three-month forward pound is $1.97. Will a U.S. investor benefit from covered interest arbitrage? (Hint: The three- 1.5%.) month U.K. interest rate is 10% = 2.5%, and the three-month U.S. interest rate is No, because there will be a loss of 2%. O Yes, the investor will benefit by 4%. O No, because there will be a loss of 3%. O No, because there will be a loss of 4%.

Which of these graphs shows how a contractionary monetary policy in Foreign affects its exchange rate? CHF) Cour A B LX) LIX) ERRIF) ERR ERRIF) ERR CHF) CHF) ERR LOY) EAR B ERRF) MP D # ERRIF) ERR Mu ERR