Suppose the economy is hit by an adverse aggregate demand shock. In response to this shock, the central bank reacts to maintain a fixed exchange rate. As a result of these changes, O A. both AA and DD will shift. OB. AA will shift. OC. neither AA nor DD will shift. OD. DD will shift. The graph on the right depicts the initial equilibrium in the economy with the fixed exchange rate. Using the line drawing tool, add new AA and DD lines corresponding to an adverse aggregate demand shock, and label them "AA2" and "DD2." Carefully follow the instructions above and only draw the required objects. We can see that an adverse aggregate demand shock will lead to a In order to maintain a fixed exchange rate, the money supply will in output. Exchange rate, E Output, Y DD₁ AA₁

Suppose the economy is hit by an adverse aggregate demand shock. In response to this shock, the central bank reacts to maintain a fixed exchange rate. As a result of these changes, O A. both AA and DD will shift. OB. AA will shift. OC. neither AA nor DD will shift. OD. DD will shift. The graph on the right depicts the initial equilibrium in the economy with the fixed exchange rate. Using the line drawing tool, add new AA and DD lines corresponding to an adverse aggregate demand shock, and label them "AA2" and "DD2." Carefully follow the instructions above and only draw the required objects. We can see that an adverse aggregate demand shock will lead to a In order to maintain a fixed exchange rate, the money supply will in output. Exchange rate, E Output, Y DD₁ AA₁

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter22: International Finance

Section: Chapter Questions

Problem 10QP

See similar textbooks

Similar questions

Suppose the economy is hit by an adverse aggregate demand shock. In response to this shock, the central bank reacts to maintain a fixed exchange rate. As a result of these changes, A. both AA and DD will shift. B. AA will shift. C. neither AA nor DD will shift. D. DD will shift. The graph on the right depicts the initial equilibrium in the economy with the fixed exchange rate. Using the line drawing tool, add new AA and DD lines corresponding to an adverse aggregate demand shock, and label them "AA₂" and "DD2." Carefully follow the instructions above and only draw the required objects. We can see that an adverse aggregate demand shock will lead to a In order to maintain a fixed exchange rate, the money supply will in output. C Exchange rate, E Output, Y DD₁ AA₁ LY
Suppose the economy is hit by a favorable aggregate demand shock. In response to this shock, the central bank reacts to maintain a fixed exchange rate. As a result of these changes, A. neither AA nor DD will shift. B. both AA and DD will shift. C. DD will shift. D. AA will shift. The graph on the right depicts the initial equilibrium in the economy with the fixed exchange rate. Using the line drawing tool, add new AA and DD lines corresponding to a favorable aggregate demand shock, and label them "AA₂" and "DD₂." Carefully follow the instructions above and only draw the required objects. We can see that a favorable aggregate demand shock will lead to a In order to maintain a fixed exchange rate, the money supply will in output. rise fall CH Exchange rate, E Output, Y DD₁ AA₁
Kenya and Venezuela are major trading partners and the exchange rate between the Kenyan shilling and the Venezuelan bolivar is determined in a flexible foreign exchange market. A. Assume real income increased in Venezuela. Draw a correctly labeled graph of the foreign exchange market for the shilling and show the effect of increased real income in Venezuela on the equilibrium exchange rate for the shilling. B. Will each of the following increase, decrease, or remain the same as a result of the increase in Venezuelan real income? i. Kenya's net exports. Explain. ii. Unemployment in Kenya. Explain. iii. Kenya's long run aggregate supply. C. Assume instead household savings increase in Venezuela. Draw a correctly labeled graph of the loanable funds market in Venezuela and show the effect of the increase in household savings on the equilibrium real interest rate. D. Based on the change in the equilibrium real interest rate identified in Part C, what will happen to…
Kenya and Venezuela are major trading partners and the exchange rate between the Kenyan shilling and the Venezuelan bolivar is determined in a flexible foreign exchange market. A. Assume real income increased in Venezuela. Draw a correctly labeled graph of the foreign exchange market for the shilling and show the effect of increased real income in Venezuela on the equilibrium exchange rate for the shilling. B. Will each of the following increase, decrease, or remain the same as a result of the increase in Venezuelan real income? i. Kenya's net exports. Explain. ii. Unemployment in Kenya. Explain. iii. Kenya's long run aggregate supply. C. Assume instead household savings increase in Venezuela. Draw a correctly labeled graph of the loanable funds market in Venezuela and show the effect of the increase in household savings on the equilibrium real interest rate. D. Based on the change in the equilibrium real interest rate identified in Part C, what will happen to…
a. In September 1995, Patrick Buchanan, a Republican candidate for president, proposed a 10 percent tariff on Japanese imports to the United States, a 20 percent tariff on Chinese imports to the United States, and an unspecified "social" tariff on imports from developing countries. Use the long-run model of a small open economy to graphically illustrate the impact of these trade policies on the U.S. exchange rate and the trade balance. Assume that the country starts from a position of trade balance. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the new longrun equilibrium values. b. Based on your graphical analysis, explain the predicted impact of Mr. Buchanan's proposed policies. Specifically state what happens to the exchange rate, the trade balance, the volume of imports, and the volume of exports. Please show the graph while describing each piece.
Now Read Module 42 1. In the following scenario, correctly draw and label the exchange rate graph for each nation. Then indicate the impact of the scenario on each nation's currency. A. Interest rates rise faster in Scotland (GBP) than they do in the United States (USD). A. Rationale: B. Which nation's currency appreciates? C. Which nation's currency depreciates? D. How will the change in the value of the U.S. dollar impact the balance of trade in the United States?
Suppose more companies begin to “nudge” their employees into saving for retirement throughthe use of automatic enrollment plans. Use the long-run model of a small open economy to graphically illustrate the impact of the rise in retirement savings on the exchange rate and the trade balance. Explain the results of your graphical analysis in detail. Assume that the country starts from a position of the trade balance. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction that the curves shift; and v. the new long-runequilibrium values
Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the EUR/USD exchange rate. Given this change in exchange rate, how would firms and customers be affected? professors note Supply and demand for currencies can be tricky, not least due to the confusing idea that what we are buying or selling is money itself! Once you can wrap your mind around the idea that money is what is being obtained for other money, the next set of questions relates to what would or could make the price of one money change in terms of another. To this effect, I'd recommend a primer from Investopedia: Six Factors That Influence Exchange Rates. For your consideration in responding to this post, I suggest reading on how the Carry Trade has the capacity to magnify systemic risk.
Suppose that the U.S. imposes a tariff on imported automobiles. Answer the following questions in words and with a diagram. (a) What happens to the demand for dollars in the market for foreign-currency exchange? (b) What happens to the real exchange rate? (c) What happens to net exports? Why?
The diagram to the right most likely shows the impact on the Canadian economy of A. an increase in the worldwide demand for petroleum products, a major Canadian export good. B. changes in world tastes in favour of Canadian goods. C. a decrease in foreign incomes. D. an outbreak of inflation outside of Canada. If the Bank of Canada makes no transactions in the foreign-exchange market, the Canadian dollar will undergo a depreciation. Use the three-point curve drawing tool to show how a flexible exchange rate serves as a "shock absorber" to the external shock depicted in the accompanying graph. Carefully follow the instructions above, and only draw the required objects. …………. Price Level (P) FO Real GDP (Y) ASO AD1 ADO Q
In the foreign exchange market, the supply curve for the dollar is upward sloping. That is, when the exchange rate (foreign currency per dollar) increases, the quantity of dollars supplied increases. Assuming actors have not yet had time to change their expectations about the future exchange rate, when the exchange rate increases, why is the supply curve of dollars in the foreign exchange market upward sloping? Foreign goods and services are less expensive to import. U.S. firms profit more by selling their goods and services domestically rather than selling to foreigners. The expected profitability of purchasing a dollar today to sell in the future rises. U.S. goods are less expensive for foreigners to purchase.
Consider two countries with friendly trade relations, South Korea and Australia. Suppose that the real interest rate in South Korea increases relative to Australia. Show how the change in the real interest rate affects the equilibrium exchange rate by shifting one or both of the curves on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and to its original position, just drag it a little farther. EXCHANGE RATE (wones per dollar) Supply Demand QUANTITY (Millions of dollars) As a result of the change in the real interest rate, the South Korean won Demand Supply (?) in value relative to the Australian dollar. snaps back