What is the effect on the economy

Assignment Help Macroeconomics

Reference no: EM132179396

Question 1

Explain why net exports and net capital outflow are always equal.

Question 2
Explain why higher real interest rates lead to lower net capital outflow.

Question 3
Discuss whether each of the following groups would be happy or unhappy if the US dollar depreciated.

Part (a)

The People's Bank of China holding US government bonds.

Part (b)

The US manufacturing industry.

Part (c)

Mainland Chinese tourists planning a trip to the Unites States.

Part (d)

An American firm trying to purchase property in Hong Kong.

Question 4
Due to the current trade sanctions and tariffs imposed by different countries on each other across the globe, many economies are affected. Suppose an economy that is initially at full employment faces a substantial increase in the factor cost of production as a result of this issue.

Part (a)

Discuss (with the aid of aggregate output market and money market diagrams) the short-run effect on output, unemployment, general price

level and interest rate with a substantial increase in the factor cost of production. (10 marks)

Part (b)

Discuss (with the aid of an aggregate output market diagram) what kind of monetary policy can be adopted to restore the economy back to the full employment equilibrium.

Part (c)

Suppose the problem you discussed in part (a) relies on the self- adjustment mechanism instead of the discretionary policy proposed in part (b). Examine the possible impact of a minimum wage on the self- adjustment mechanism.

Question 5
Suppose an earthquake in a country has destroyed many power plants and factories and killed many people.

a What is the effect on the economy, and how can it be shown on an AD-AS diagram?

b Explain what policies are available for this country to stimulate economic activity in the short run. How is this action illustrated in the AD-AS model? What problems may result if they are successful?

Question 6
Suppose the US dollar depreciates against other currencies. Under the linked exchange rate system, Hong Kong pegs its nominal exchange rate to the US dollar.

Part (a)

What would happen to the prices of goods and services (in terms of US dollars) in Hong Kong if the domestic prices remain unchanged?

Part (b)

Discuss (with the aid of an aggregate output market diagram) the short- term impact on the Hong Kong economy with the depreciation of the US dollar.

Part (c)

Based on the analysis above, examine the possible impact on the local general price level if there is a continuing depreciation of the US dollar.

Part (d)

Suppose the linked exchange rate system is abolished in Hong Kong. Discuss how it would affect your prediction in part (c).

Reference no: EM132179396

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