Suppose money demand depends on disposable income, so that the equation for the money market becomesM/P = L(r, Y-T).a. In the accompanying diagram, shift the IS curve, the LM curve, or both to show the short-run impact of a tax cut on theexchange rate and income under a floating exchange rate.Exchange Rate, eIncome, Output, YLMIS c. In the accompanying diagram, shift the IS curve, the LM curve, or both to show the short-run impact of a tax cut on theexchange rate and income under a fixed exchange rate.Exchange Rate, eIncome, Output, YLMIS

Money Market Equilibrium : LM relation => M/P = L (r , Y- T ) Goods market equilibrium : IS…

Suppose money demand depends on disposable income, so that the equation for the money market becomes M/P = L(r, Y – T). a. In the accompanying diagram, shift the IS curve, the LM curve, or both to show the short-run impact of a tax cut on exchange rate and income under a floating exchange rate. LM

Suppose money demand depends on disposable income, so that the equation for the money market becomes M/P = L(r, Y – T). a. In the accompanying diagram, shift the IS curve, the LM curve, or both to show the short-run impact of a tax cut on exchange rate and income under a floating exchange rate. LM

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 9SCQ: Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt...

See similar textbooks

Similar questions

Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
If Boblandia had a flexible exchange rate, it would cost 5 Bobos to purchase a Canadian dollar. The Central Bank of Boblandia (aka, the Bank of Boblandia, or BoB) has fixed the exchange rate, saying it will buy or sell Bobos at C$0.25 for each Bobo. Which of the following is true? O At the fixed exchage rate, supply of Bobos exceeds demand. The BoB's holdings of Canadian dollars will increase. O At the fixed exchage rate, supply of Bobos exceeds demand. The BoB's holdings of Canadian dollars will decrease. O At the fixed exchage rate, supply of Bobos is less than demand. The BoB's holdings of Canadian dollars will increase. O At the fixed exchage rate, supply of Bobos is less than demand. The BoB's holdings of Canadian dollars will decrease.
Suppose Indonesia drastically decreases the size of their import quota for red onions. Use the interactive graph to illustrate the impact the decreased quota has on the foreign exchange market for rupiahs. The rupiah's real exchange rate remains constant. Considering the previous answer, choose the answer that describes what happens to Indonesia's net exports (NX). O Net exports decrease. Net exports increase. Net exports do not change. Real exchange rate Supply Quantity of rupiahs Demand
Exchange rate, e €1 es 26 LM₂ LM LM₁ A E Y2 B D G Y" YI C move to point B with a higher exchange rate F IS₂ IS IS₁ Y Assume a small open economy with floating exchange rates. If the economy initially starts at point D, and the monetary authority raises the discount rate, then the economy is likely to move to point G with a lower exchange rate shift the LM curve to LM1 and move to point F with a lower exchange rate shift the LM curve to LM2 and move to point A with a higher exchange rate
Suppose the exchange rate between the Mexican peso and the U.S. dollar is 12 MXN = $1 and the exchange rate between the Hungarian forint and the U.S. dollar is 215 FNT = $1.a. Express both of these exchange rates in terms of dollars per unit of the foreign currency.b. What should the exchange rate be between the Mexican peso and the Hungarian forint? Express the exchange rate in terms of 1 peso and in terms of 1 forint.c. Suppose the exchange rate between the peso and the dollar changes to 9 MXN = $1 and the exchange rate between the forint and the dollar changes to 240 FNT = $1. For each of the three currencies, explain whether the currency has appreciated or depreciated against the other two currencies.
Assume that there is a free-floating exchange rate. Interest rates rise in the UK,relative to those abroad. Discuss the effect that you would expect this to have onexchange rates. You should consider the effect on currency supply and demand, andillustrate your answer with a diagram. You should also consider how this relates to theconcept of uncovered interest rate parity, and discuss this with the help of an equation.
Suppose that Russia decided to increase interest rates by %2. Considering the inflation and interest differential between the US and Germany, what is likely to happen to real exchange rate in Russia? Explain with this formula iRuble− idollar = π − π * Almanya isim: Almanya
Suppose the exchange rate between the Mexican peso and the U.S. dollar is 12 MXN = $1 and the exchange rate between the Hungarian forint and the U.S. dollar is 215 FNT = $1.a. Express both of these exchange rates in terms of dollars per unit of the foreign currency.b. What should the exchange rate be between the Mexican peso and the Hungarian forint?
If Boblandia had a flexible (floating) exchange rate, it would cost 5 Bobos to purchase a Canadian dollar. The Central Bank of Boblandia (aka, the Bank of Boblandia, or BoB) has fixed the exchange rate, saying it will buy or sell Bobos at C$0.22 for each Bobo. Which of the following is true (assuming no capital controls in Boblandia)? O At the fixed exchage rate, supply of Bobos exceeds demand. Expansionary monetary policy can restore the balance between supply and demand of Bobos. O At the fixed exchage rate, supply of Bobos exceeds demand. Contractionary monetary policy can restore the balance between supply and demand of Bobos. O At the fixed exchage rate, supply of Bobos is less than demand. Expansionary monetary policy can restore the balance between supply and demand of Bobos. O At the fixed exchage rate, supply of Bobos is less than demand. Contractionary monetary policy can restore the balance between supply and demand of Bobos.
If Boblandia had a flexible (floating) exchange rate, it would cost 5 Bobos to purchase a Canadian dollar. The Central Bank of Boblandia (aka, the Bank of Boblandia, or BoB) has fixed the exchange rate, saying it will buy or sell Bobos at C$0.17 for each Bobo. Which of the following is true (assuming no capital controls in Boblandia)? O At the fixed exchage rate, supply of Bobos exceeds demand. The BoB's holdings of Canadian dollars will increase. O At the fixed exchage rate, supply of Bobos exceeds demand. The BoB's holdings of Canadian dollars will decrease. At the fixed exchage rate, supply of Bobos is less than demand. The BoB's holdings of Canadian dollars will increase. O At the fixed exchage rate, supply of Bobos is less than demand. The BoB's holdings of Canadian dollars will decrease.
Suppose that we observe the following change in the international market for USD: a USD B O The CAD woul appreciate. O The CAD woul depreciate. S₁ Q In this case, what wopuld we expect to happen to the price of CAD if the CAD-USD exchange rate was flexible?
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.