Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full-employment output level. After devaluation, the economy first reaches its short-run equilibrium, and thenadjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we find that the new long-run equilibrium hasa higher output level and the same nominal exchange rate, E.a lower output level and a lower nominal exchange rate, E.a higher output level and a lower nominal exchange rate, E.the same output level and a higher nominal exchange rate, E.a lower output level and the same nominal exchange rate, E.Question 49 (Suppose that the economy initially stays at the long-run equilibrium of full-employment output level with afixed exchange rate. After devaluation, the economy reaches its new long-run equilibrium. Comparingthis new long-run equilibrium with the initial long-run equilibrium, we find that in the new long-runequilibriumthe domestic price increases more than the nominal exchange rate.the domestic price increases less than the nominal exchange rate.both the domestic price and nominal exchange rate increase at the same rate.the domestic price is unchanged; the nominal exchange rate increases.the domestic price decreases; the nominal exchange rate increases.

Since you have asked multiple questions, we are answering only the first question. To get answers to…

Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After devaluation, the economy first reaches its short-run equilibrium, and then adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we find that the new long- run equilibrium has O a higher output level and the same nominal exchange rate, E. a lower output level and a lower nominal exchange rate, E. a higher output level and a lower nominal exchange rate, E. the same output level and a higher nominal exchange rate, E. a lower output level and the same nominal exchange rate, E.

Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After devaluation, the economy first reaches its short-run equilibrium, and then adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we find that the new long- run equilibrium has O a higher output level and the same nominal exchange rate, E. a lower output level and a lower nominal exchange rate, E. a higher output level and a lower nominal exchange rate, E. the same output level and a higher nominal exchange rate, E. a lower output level and the same nominal exchange rate, E.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter22: International Finance

Section: Chapter Questions

Problem 10QP

See similar textbooks

Similar questions

Consider a floating exchange rate regime. How does higher government purchases affect output and interest rate in equilibrium? Answer and discuss with the help of the diagram given (e.g., show what curves will shift, label curves and axes correctly). Consider a fixed exchange rate regime. How does higher government expenditure affect output and interest rate in equilibrium? Discuss with the help of the diagram (e.g., show what curves will shift, label curves and axes correctly). Are your conclusions in (1) and (2) consistent with Mankiw's conclusion using the IS-LM diagram drawn in exchange rate-Output axes? Discuss.
In the foreign exchange market, the supply curve for the dollar is upward sloping. That is, when the exchange rate (foreign currency per dollar) increases, the quantity of dollars supplied increases. Assuming actors have not yet had time to change their expectations about the future exchange rate, when the exchange rate increases, why is the supply curve of dollars in the foreign exchange market upward sloping? Foreign goods and services are less expensive to import. U.S. firms profit more by selling their goods and services domestically rather than selling to foreigners. The expected profitability of purchasing a dollar today to sell in the future rises. U.S. goods are less expensive for foreigners to purchase.
Consider two countries with friendly trade relations, South Korea and Australia. Suppose that the real interest rate in South Korea increases relative to Australia. Show how the change in the real interest rate affects the equilibrium exchange rate by shifting one or both of the curves on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and to its original position, just drag it a little farther. EXCHANGE RATE (wones per dollar) Supply Demand QUANTITY (Millions of dollars) As a result of the change in the real interest rate, the South Korean won Demand Supply (?) in value relative to the Australian dollar. snaps back
Assume real income increased in the United States. Draw a correctly labeled graph of the foreign exchange market for the yen, and show the effect of the increased real income in the United States on the equilibrium exchange rate for the yen.
In the context of the monetary approach to the determination of the exchange rate, what is the effect on the price level, interest rate and exchange rate from a permanent contraction in the domestic level of the money supply? How does your previous answer modify if, instead of the level, it is the domestic growth rate of the money supply that contracts permanently? How do your previous answers modify if we drop the assumption of PPP?
Suppose that if you purchase a big Mac in Coral Springs, FL in the US, it will cost you $3.95. On the other hand, if you purchase the same big Mac in Florianopolis in southern Brazil, it will cost you 18.85 Brazilian real. The current exchange rate is $1 US buys 5.60 real. In this case, according to the law of one price, the exchange rate should be that $1 US buys time we predict that the US dollar should real, and hence, over ---- O 5.95; appreciate O 5.95; depreciate O 4.77; appreciate 4.77; depreciate
An exchange rate is the domestic price to purchase one unit of a foreign currency. For example, how much does it cost in Canadian dollars to buy one US dollar? There are various economic theories to predict exchange rates. The simplest theory is known as the Law of One Price or also known as Absolute Purchasing Power Parity (PPP). Use absolute PPP and the price of a Big Mac in different countries to complete the table below and to predict whether the local currency is over or undervalued compared to the US dollar. Country USA Canada Saudi Arabia Brazil Italy Source: The Economist Big Mac Price in Local Currency $4.62 $5.54 SR 10 R$ 12 €3.75 Current Market Exchange Rate e 1.10 3.75 2.27 0.74 Exchange Rate Predicted by PPP and Big Mac ê According to the table above, an arbitrageur in Brazil could make money by If the Big Mac Index were accurate for other tradeable goods and services, Brazil's AD curve would O Local Currency should... the US. 수 + 8°C. Clou
On the following graph, use the grey point (star symbol) to show the new exchange rate resulting from an increase in the world demand for coffee. EXCHANGE RATE 10 8 2 0 0 The market for foreign exchange 20 S₁ D 1 40 60 QUANTITY (Millions of reais) 80 Ceiling Floor D2 100 New Exchange Rate Action (?)
Assume that you are studying exchange rates between India and the US. Assume that the equilibrium exchange rate in India is 76 Indian rupees per US dollar. Now suppose that the inflation rate falls in India. Which of the following choices shows a change we would expect to see in the Indian forex market? The demand for the US dollar would rise, leading to a depreciation of the Indian rupee. The demand for the Indian rupee would increase leading to an appreciation of the US dollar. The supply of the Indian rupee would rise leading to an appreciation of the Indian rupee. The supply of the US dollar would rise leading to an appreciation of the Indian rupee
Consider an economy described by the following equations: Y =C+l+G+NX, Y =5,000, G = 1, 000, T = 1, 000, C =250+0.75(Y –T), I = 1, 000 – 50r, NX = 500 – 500ɛ, r = r* = 5 (a) In this economy, solve for national savings, investment, the trade balance, and the equilibrium exchange rate. (b) Suppose that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. (c) Now suppose that the world interest rate rises from 5 percent to 10 percent. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.
1) Large current account deficits imply large financial account surpluses. True Or False?Explain. 2) The longer the "pass-through" period following a devaluation, the faster the desirable balance of trade effects of a devaluation will appear on quantities traded. True or False? Explain. 3) Suppose we observe the following 1-year interest rates: į Turkey = 10% į USA = 2% The exchange rate is quoted as the TL price of dollars and is currently E = 6.0 TL Given the information above, what is the 12-month forward rate? 4) How is the balance of payments linked to national saving and investment? Explain.
In the context of the monetary approach to the determination of the exchange rate, what is the effect on the price level, interest rate and exchange rate from a permanent contraction in the domestic level of the money supply? how does your previous answer modify if, in addition to the contraction of the level or the growth of the money supply, the relative demand of domestic goods increases?