Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask International Economics Expert

problem 1: Foreign Exchange Market Equilibrium

We say that the foreign exchange market is in equilibrium when deposits of all currencies o ffer the same expected rate of return (when returns are denominated in the same currency). Formally,

1306_foreign exchange.jpg

a) describe why in Figure below, the foreign exchange market is not in equilibrium at points 2 and 3. Do not forget to use a graph to support your answer and describe how the equilibrium can be restored. Note that in this problem the U.S. is the domestic economy and Europe is the foreign economy.

b) Now suppose the foreign exchange market is in equilibrium (i.e. point 1 in Figure below). describe what would happen to the USD/euro nominal exchange rate if the interest rate in Europe falls. Do not forget to use a graph to support your answer.

2234_foreign exchange.jpg

Figure: Foreign Exchange Market Equilibrium

problem 2: The Exchange Rate and International Trade

In the past few decades, rms from industrial economies have installed production plants in developing countries. This strategy allowed them to move production from expensive locations to cheaper ones (a phenomenon called outsourcing). If the Indian Rupee appreciates against the euro, what would happen to outsourcing in India by European companies? describe.

problem 3: Money Market and Foreign Exchange Market

a) Show how a temporary increase in a country's real money demand causes its currency to appreciate in the foreign exchange market.

b) Using a gure describing both the U.S. money market and the foreign exchange market, analyze the e ects of a temporary increase in the European money supply on the dollar/euro exchange rate.

problem 4: DD-AA Model

a) Suppose you are the TA of Econ 3602 and one student does not know how to derive the DD schedule. Show this student how to derive the DD schedule. Support your answer with equations and gures.

b) One week later the same student comes to your oce hours and now asks you to derive the AA schedule. Show this student how to derive the AA schedule. Support your answer with equations and gures.

c) Suppose the economy is in full employment and suddenly there is a fall in the foreign price level (P). What would happen to output and the current account (net exports) in this economy?

problem 5: DD Schedule

describe what factors shift the DD schedule (support your answer with a graph).

problem 6: Stabilization Policies in the AA-DD Model

Suppose the economy of Zion has reached the long run equilibrium (i.e. full employment). Now assume that a best-seller, written by Neo and Trinity, entitled Buy Domestic Products convinces the public to consume less imported goods.

a) Show how the fall in the demand for imports a ects the output of Zion in the short run.

b) Using the AA-DD model describe how the fall in the demand for imports a ects the AA and the DD schedules, the nominal exchange rate and output (recall that we are assuming thatthe economy was at its full employment level before this shock). Support your answer with a graph.

c) Describe how scal policy (taxes o government expenditure) can be used to restore full employment? What are the implications for the nominal exchange rate? (do not forget to include graphs to support your answer).

problem 7: Answer True or False. Briefly describe your answer. No credit without explanation. Support your answer with a graph if needed.

a) The Monetary Approach to the ER. All else equal, an increase in the interest rate in Canada is associated, in the long run, with higher prices in Canada and an appreciated exchange rate (i.e. lower e2).

b) From PPP theory we can conclude that a country with high inflation (relative to its foreign partners) should have an appreciating currency.

c) All else equal, a rise in dollar interest rates causes the dollar to appreciate against the euro while a rise in euro interest rates causes the dollar to depreciate against the euro. Today's exchange rate is also altered by changes in its expected future level. If there is a decrease in the expected future level of the dollar/euro rate, for ex, then at unchanged interest rates, today's dollar/euro exchange rate will appreciate.

International Economics, Economics

  • Category:- International Economics
  • Reference No.:- M91272

Have any Question? 


Related Questions in International Economics

Research paper for the us and south korea economylester

Research Paper for the US and South Korea Economy Lester Scholl's administrative assistant calls you on Monday afternoon to set up a conference call between you and the chairman tomorrow morning to discuss the board's re ...

Assignmentaccording to theorist karen horney these 10

Assignment According to theorist Karen Horney, these 10 neurotic needs can be classed into three broad categories: Category 1: Moving Towards People (Compliant)-Need for affection and approval-Need for a powerful partner ...

Assignmentexamples of domestic and international terrorist

Assignment Examples of domestic and international terrorist groups and networks: • HAMAS • IRA • PKK • KKK • ETA • Hezbollah • Aum Shinrikyo Note: You may choose any terrorist organization or network that you would like. ...

International economics 7 calculation questionsplease show

International Economics, 7 Calculation Questions Please show the full calculation. Type or pictures of your handwriting are fine! 1. Consider the following data on August 1, 2016 (annual) interest rates US: 0.3% Brazil: ...

Economics problem seta suppose the united states can

Economics Problem Set A) Suppose the United States can produce 20 tons of FOOD or 8 TRACTORS, and suppose Japan can produce 10 tons of FOOD or 3 TRACTORS. B) What is the opportunity cost of producing tractors in the Unit ...

Assignment global economy national economies and

Assignment: Global Economy, National Economies, and Competition In the first part of the twenty-first century a great recession struck most of the countries in the world. The next decade has been severally impacted with ...

Assignmentsuppose that there are two products clothing and

Assignment Suppose that there are two products: clothing and soda. Both Brazil and the United States produce each product. Brazil can produce 100,000 units of clothing per year and 50,000 cans of soda. The United States ...

Can lesotho afford an independent monetary

Can Lesotho afford an independent monetary policy? Requirement: 2100 words, 1.5. Spacing, No plagiarism, apa style of referencing. Includes abstract page and conclusion page

Economics assignmentpart i1 assume the united nations

Economics Assignment PART I 1. Assume the United Nations Educational, Scientific, and Cultural Organization (UNESCO) hired you as an economic development expert. Your mission is to travel to several developing countries ...

Case study- required casethe brics brazil russia india

Case Study- Required Case The BRICS (Brazil, Russia, India, China, and South Africa) nations are increasingly important in international business. Provide a comprehensive description of the economy of each of these natio ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen