In the figure below, the aggregate demand function does not go through the origin because:2.Aggregatedemand, D1.The change in aggregate demand is always positive45°3.Aggregate demand is a function of the real exchange rateAggregate demand function,D(EP /P, Y-T, I, G)investment, government and foreign demand are greater than 0Output (real income), Y

Aggregate demand (AD) refers to the total amount of goods and services that all sectors in an…

Answered: In the figure below, the aggregate…

In the figure below, the aggregate demand function does not go through the origin because: Aggregate demand, D 45° Aggregate demand function, DEP /P, Y-T, I, G) Output (real income), Y

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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When a country's currency appreciates, the prices of its exports in terms of foreign currency will ______. remain constant decrease increase fluctuate randomly.
Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market.(a) 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.(b) Will each of the following increase, decrease, or stay the same as a result of the increase in the United States real income?(i) Japan's net exports. Explain.(ii) Unemployment in Japan. Explain.(iii) Japan's long-run aggregate supply(c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loanable funds market in the United States, and show the effect of the increase in household savings on the equilibrium real interest rate.(d) Based on the change in the equilibrium real interest rate identified in part (c),…
N N QUESTION 3 Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. Initially, the supply curve for USD is 100+ e bln dollars per week and the demand curve is 140-e bln dollars per week. There is a financial crisis in Mexico and the government fears that it may lead to capital outflows that would make the crisis even worse. They decide that if Mexican Peso depreciates by more than 20%, the central bank will step in and fix the exchange rate. As the crisis unfolds the demand for the U.S. dollars increases to 142-e and the supply of dollars falls to 99+ e How should the central 'N' bank of Mexico react to this change? N O A. start selling U.S. dollars to support the exchange rate O B. start buying U.S. dollars to support the exchange rate O C. reduce money supply in the economy O D. do nothing
(b) Suppose the real exchange rate is 10, the domestic price level is 8, and the foreign price level is 4. (i) What is the nominal exchange rate? Use the expression: ereal= enor*P / Pfor where ereal is real exchange rate, enor is nominal exchange rate, P is domestic price level and Pfor is foreign price level. (ii) Suppose the real exchange rate rises by 10%, the inflation rate in the domestic country is 6%, and the inflation rate in the foreign country is 4%. By what percentage does the nominal exchange rate change?
Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (a) Assume real income increased in the United States. Explain how this increase in income in American GDP will affect the FOREX graph of the Yen b) Will each of the following increase, decrease, or stay the same as a result of the increase in the United States real income? (i) Japan’s net exports. Explain. (ii) Unemployment in Japan. Explain. (iii) Japan’s long-run aggregate supply (c) Assume instead household savings increased in the United States. What would happen on loanable funds market in the United States with the supply of loanable funds, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States? e) Based on…
17. Consider two exchange rates X/Y and Z/Y. (For example EUR/USD and JPY/USD.) They both follow perfectly correlated geometric Brownian motions with parameters (1,01) and (μ2,02). (a) The cross-exchange rate X/Z (for example EUR/JPY) follows a standard Brownian motion (b) The cross-exchange rate X/Z (for example EUR/JPY) follows a general Brownian motion (c) The cross-exchange rate X/Z (for example EUR/JPY) follows a geometric Brownian motion (d) The cross-exchange rate X/Z (for example EUR/JPY) does not follow a geometric Brownian motion
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