Solution-Is-lm-fx model and stabilization policy

Is-lm-fx model and stabilization policy

Reference no: EM131492817

IS-LM-FX Model and Stabilization Policy Suppose the fiscal authority of an economy implements expansionary policy. Specifically, the government introduces a lump-sum tax cut. Suppose also that this country has a credible fixed exchange rate regime and, following the tax cut, central bank uses monetary policy to maintain the peg.

a. Consider the graphical illustration of the IS-LM-FX model and answer the following questions comparing the initial equilibrium before any change was implemented to the equilibrium that prevails after all the policy changes are implemented.

- What happens to the consumer spending? - Why? Explain.

- What happens to the investment spending? Why? Explain.

- What happens to the trade balance? Why? Explain.

b. Assume, instead, that the country has floating exchange rates. Suppose that following the tax cut, the central bank decides to pursue an output stabilization policy. Comparing the initial equilibrium before any change was implemented to the equilibrium that prevails after all the policy changes are implemented: - What happens to the consumer spending? - Why? Explain.

- What happens to the investment spending? Why? Explain.

What happens to the trade balance? Why? Explain.

Reference no: EM131492817

Questions Cloud

Draft the agreement between the parties : Draft the agreement between the parties, taking into account that this agreement must be implemented and performed both in The Netherlands and in Spain.

What is foster care : What is foster care? What are its strengths and weaknesses? What changes would you propose to improve the system

Discuss the bus clock signal : A CPU generates a bus clock and R/W_L signal during a read cycle as shown in Figure. Give a logic equation or show a logic diagram expressing the logic.

Changing landscape of the health care system : Write a 1,050- to 1,400-word reflection that details the changing landscape of the health care system. Include the following:

Is-lm-fx model and stabilization policy : Suppose the fiscal authority of an economy implements expansionary policy. Specifically, the government introduces a lump-sum tax cut.

How does this study apply to the real world : Write a 700- to 1,050-word paper covering the following: What was the purpose of this study? How does this study apply to the real world

What are the reasons you decided to become a teacher : What are reasons you decided to become a teacher? Is there an experience in your life that might have steered or moved or guided you toward becoming a teacher?

How are these different from your parents or grandparents : What are some of your ascribed, achieved, and master statuses? How are these different from your parents or grandparents

Calculate the net present value : Calculate the net present value, that is, the net benefit or net loss in present value terms of the proposed purchase and the resultant incremental cash flows.

User Account

All Pages

Is-lm-fx model and stabilization policy

Reference no: EM131492817

Reference no: EM131492817

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT