Explain what must occur for the interest parity

Assignment Help Macroeconomics
Reference no: EM13816867

Answer the question below with relevant graphs, equations, estimations, and explaining clearly in words. Also, you may not copy from the textbook materials or from any other sources in the Internet.

Your answers must be in your own words based on your knowledge in the relevant topics in the course learning.

a. Suppose the domestic and foreign interest rates are both initially equal to 4%. Now suppose the foreign interest rate rises to 6%. Explain what effect this will have on the exchange rate. Also explain what must occur for the interest parity condition to be restored.

b. Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model, graphically illustrate and explain what effect an increase in government spending will have on the domestic economy. In your graphs, clearly label all curves and equilibria.

c. Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model, graphically illustrate and explain what effect expansionary monetary policy will have on the domestic economy. In your graphs, clearly label all curves and equilibria.

d. Assume that policy makers are pursuing a fixed exchange rate regime. Now suppose that the foreign interest rate falls. Discuss what policy makers must do to maintain the pegged exchange rate. Also discuss what effect this will have on domestic output and net exports.

e. Assume the exchange rate is fixed. Using the IS-LM model, graphically illustrate and explain what effect an increase in consumer confidence will have on the domestic economy. In your graphs, clearly label all curves and equilibria.

Reference no: EM13816867

Questions Cloud

Discuss main differences between leadership and management : What does Kotter argue are the main differences between leadership and management. Do you believe he is right. Why or Why not.
Propose an epidemiological project : Propose an Epidemiological Project
Explain the organizational culture analysis : Symbols of culture are called artifacts. Artifacts are the most visible and accessible level of culture. These include behaviors, stories, rituals (everyday practices that are repeated frequently), and symbols (e.g., company logos, company colors)..
Contrast the essential differences between slt and slii : Compare and contrast the essential differences between SLT and SLII. Are the differences significant. Why or why not
Explain what must occur for the interest parity : Suppose the domestic and foreign interest rates are both initially equal to 4%. Now suppose the foreign interest rate rises to 6%. Explain what effect this will have on the exchange rate. Also explain what must occur for the interest parity condit..
Describe the two roles of leaders : Describe the two roles of leaders. Then identify a leader involved in a current event, a current leader of a company or organization (it could be your church, your workplace, or the workplace of someone you know very well), or a leader in your cir..
How does your analysis reflect your own study of humanities : How does your analysis reflect your own study of the humanities? What did you learn about yourself, other cultures, and other time periods through the study of these artistic artifacts?
Recruitment and staffing proposal : The objective of this assignment is to allow you to demonstrate your knowledge of the steps required to recruit and staff for an important segment of the workplace and to demonstrate your strategic skills to the CEO.
Different factors which can affect the promotion mix : What are some of the different factors which can affect the promotion mix? Think about and provide examples of two different message strategies you've seen in commercials in the last year. Why do you think they were or were not effective

Reviews

Write a Review

Macroeconomics Questions & Answers

  Inflation targeting be a good policy

Why might it be difficult for the Fed to formally adopt inflation targeting?  Would inflation targeting be a good policy for the Fed in the present economic environment

  In using the taylor rule

In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?

  Describe the present economic crisis situation in europe

Describe the present economic crisis situation in Europe.  Why has it been so difficult for the Europeans to find a solution to this problem?   Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..

  Long-term federal government budget problems

Question:. Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading.

  Derive and compare demand curve

Question based on Derive and compare demand curve,  Derive Ambrose's demand function for peanuts. How does it compare with Johnny's demand curve for peanuts?

  Problem based on utility function

Problem based on  Utility Function - Problem,  Answer and explain the following using a diagram which is completely labeled.

  Laffer curve : tax rate and tax revenue

Question based on Laffer Curve : Tax Rate and Tax Revenue,  Do raising tax rates necessarily raise tax revenue? What factors affect how tax revenue changes when tax rates change?

  Problem - income elasticity of demand

Problem - Income Elasticity of Demand,  Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior; YED= +0.5 and YED= -2.5

  Positive balance of payment

Question Positive Balance of Payment: "Things will look good for the US if we could just get to where we are consistently running a positive Balance of Payments."

  Effect of recession on the investment curve

Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibrium real interest rate in the financial crisis that hits United States first starting in fall 2007.

  Affect of falling domestic investment on trade surplus and

How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world.

  Crises in the banking sector and bank run

Banking crises crisis decreases depositors' confidence in the banking system. What would be the effect of a rumor about a banking crisis on checkable deposits in such a country?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd