Exchange rate respond to fiscal expansion policy

Assignment Help Business Economics

Reference no: EM131393411

Consider an economy where

C=200+0.25(Y-T)

I=150+0.25Y-1000i

G=250, T=200 (M/P)d=2Y-8000i (M/P)s =1600

X = 0.3Y*, IM =0.2Y,

ε (real exchange rate) = 2, Y* is foreign output (Y*=900)

If this economy has flexible exchange rate regime, how would the exchange rate respond to a fiscal expansion policy? Appreciation or Depreciation? Explain why.

Reference no: EM131393411

Questions Cloud

How have people reacted to poverty : How have people reacted to poverty? How has the American government reacted to poverty? Has anything been effective in addressing poverty in America?

What is an aggregate production function : What is an aggregate production function? A change in what factor or factors cause a movement along the aggregate production function? A change in what factor or factors shifts the aggregate production function?

Open and closed fiscal policy multipliers : Explain and demonstrate the differences between 'open' and 'closed' fiscal policy multipliers. (Assume a fiat curency and floating exchange rates.) Be sure to discuss the small economy vs. large economy case in your answer.

The new value of equilibrium output : Suppose the investment demand function changes and is now I=700 – 50(r). The new value of equilibrium output is

Exchange rate respond to fiscal expansion policy : If this economy has flexible exchange rate regime, how would the exchange rate respond to a fiscal expansion policy? Appreciation or Depreciation? Explain why.

Most likely support raising the corporate income tax : A supply side economist would most likely support raising the corporate income tax. If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate suppl..

Increase in real gross domestic product : Suppose the marginal propensity to save (MPS) equals 0.30, an increase in autonomous investment of $100 will lead to an increase in real Gross Domestic Product (GDP) by

Draw labor market graph : Draw a labor market graph and a few well chosen sentences a situation in which athletes that immigrate to the United States may be discriminated against, despite earning a higher wage than those that are native born.

Investment demand function changes : Suppose the investment demand function changes and is now I=700 – 50(r). The new value of equilibrium output is.

User Account

All Pages