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The following questions are based on fixed exchange rate and/or flexible exchange rate regime from the perspective of macroeconomic policy implications in an open macroeconomic model. The answers must be written in your words along with graphical illustration, if appropriate. Without explaining in your words, the graphical illustration alone will not be credible. Also make sure you use the relevant symbols and notation on each of the lines and axis on the graph(s) to clearly indicate the working mechanism of variables. a. Assume a country is in a fixed exchange rate regime such as China. Explain what factors might cause individuals to expect that a country will devalue its currency. Explain the various actions that policy makers can choose in response to this expected devaluation. Hint: As part of your answer, you may give the example of the most recent (Aug 11 and 12, 2015) devaluation of Chinese currency (Yuan or Renminbi) by more than 2% against its major composite currency index. b. Assume a country is in a fixed exchange rate regime. Now suppose that individuals expect that policy makers will devalue its currency. Explain the various actions that policy makers can choose in response to this expected devaluation. c. Suppose the economy is operating below the natural level of output. Discuss the arguments for and against using devaluation in such a situation. d. Suppose the economy is initially operating above the natural level of output. In a fixed exchange rate regime, explain how the economy will adjust to this situation.
A small group of dockworkers in California, working for Topside Industries, an international shipping company, was being investigated concerning its involvement in a theft. The theft itself was a rather simple operation. The chapter identifies some o..
In December 1992, the government began requiring that food contain labels with nutritional information. The information had to be verified by independent laboratories. The price of verification was $20,000 per food item. What impact would this have o..
At Northvale Golf club the demand for rounds of golf by each one of the 100 identical senior golf members is given by Dsr in Figure 14.3. Northvale's annual fixed costs are $500,000 and variable costs are constant and equal to $30 per round. If the m..
The U.S. dollar is overvalued and the peso is undervalued in the foreign exchange market
What is the mechanism in the Solow model that generates growth? Why is this an appealing mechanism? Why does it fail to deliver economic growth in the long run
Assume that the position of a nation’s aggregate demand curve has not changed, but the long-run equilibrium price level has declined. Other things being equal, which of the following factors might account for this event?
If most cartel members keep their agreement to cut back production. People sometimes point to similar gas prices at competing gas stations as evidence of collusion when they could just be selling at market price. If this is not good evidence of collu..
An analyst predicts that the present value of benefits of a two-year project would be $220,000 and the present value of the scrap value at the end of the project’s life is expected to be $18,000. Given a 5% discount rate, he also expects the present ..
GDP can increase from one year to the next by: Increases in prices while quantities of goods and services are constant. Increases in the quantities of goods and services produced while prices remain constant. Both prices and quantities of goods and s..
Selling price to Yumminess at $10 per tin. The cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are p..
Discuss each of the pricing strategies below. What conditions are necessary to make each strategy successful in terms of increasing profits? The price Company X charges for its ink cartridges is nearly as much as it charges for a printer. Packs of 5 ..
Determine two (2) likely factors that might have caused the change. Predict the primary manner in which this change would likely impact business operations in the new market environment.
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