Suppose the Federal Reserve enacts contractionary monetary policy to offset covid-era quantitative easing and avoid long-run inflationary pressure. Use our simultaneous equilibrium model to show the effects of such a policy action on US interest rates as well as the value of the dollar relative to the Japanese Yen.
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Suppose the Federal Reserve enacts contractionary
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- You are the chief economic adviser in a small open economy with a floating exchange rate system. Your boss, the president of the country, wishes to increase the level of output in the short run in order to win reelection. Do you recommend using monetary or fiscal policy? Expansionary or contractionary? Use the Mundell-Fleming model to illustrate graphically your proposed policy. State in words what happens to real output, the nominal exchange rate, the level of consumption, the level of investment, and the net exports,Which of the following is likely to occur for the United States, if the US dollar loses strength relative to the Japanese yen, ceteris paribus? A- Aggregate demand will decrease (shift left) B- Aggregate demand will increase (shift right) C- Aggregate supply will increase (shift right) D- Aggregate supply will decrease (shift left)This question considers long-run policies in Argentina, the home country, relative to Brazil. Assume Argentina's money growth rate is currently 4% and its inflation rate is 2%. Brazil's money growth rate is 6% with 3.25% inflation rate. The world real interest rate is 0.75%. For the following questions, use the conditions associated with the general monetary model where money demand depends on the nominal interest rate. Define the nominal exchange rate E as Argentine pesos per Brazilian real. 1. Calculate the growth rate of real income in Argentina, report the percentage number (so if the answer is 5% report "5") 2. Calculate the growth rate of real income in Brazil, report the percentage number (so if the answer is 5% report "5") 3. What is the interest rate differential between Argentina and Brazil 4. Calculate the expected depreciation rate of the Argentinian peso relative to the Brazilian Real
- Which government institution can create the most money? What tools does the Fed have to regulate money creation in the economy? What is the long-run impact of a larger money supply on inflation? What can be the impact of that money creation on the exchange rate? Support your answer using the Quantitative Theory of Money formula MV = P Q; to analyze the effect of money creation on the exchange rate use the Purchasing Power Parity Model, Exchange Rate of Currency X to Y = Cost of good in currency X/Cost of good in currency YU S foreign exchange intervention is sometimes done by an Excha U.S. foreign exchange intervention is sometimes done by an Exchange Stabilization Fund, or ESF (a branch of the Treasury Department), which manages a portfolio of U.S. government and foreign currency bonds. An ESF intervention to support the yen, for example, would take the form of a portfolio shift out of dollar and into yen assets. Show that ESF interventions are automatically sterilized and thus do not alter money supplies. How do ESF operations affect the foreign exchange risk premium? U S foreign exchange intervention is sometimes done by an ExchaSuppose the foreign country is experiencing a recession that reduces foreign output, Y*. To stimulate the economy, foreign central bank pursuits an expansionary monetary policy by reducing foreign interest rate, i*. In an IS-LM-UIP diagram, show the effect of the decrease in foreign output, Y*, and the decrease in the foreign interest rate, i*, on domestic output (Y) and the exchange rate (E), when the domestic central bank matches the decrease in the foreign interest rate with an equal decrease in the domestic interest rate.
- Assume in a given month, Japan's export to the U.S. increased. How such an increase will affect the Japanese Yen? From a U.S. perspective, how this increase will affect the U.S. dollar? Knowing that both currencies can float, verbally explain your answers using the demand/supply model (no need to draw a graph).How will the following event affect variables 1 through 3 in the foreign exchange market under a flexible exchange rate system; other things unchanged. Event: The U.S. Central Bank (the Fed) starts buying Chinese currency using dollar reserves: Variable 1: Supply of dollar in the foreign exchange market ___(increase, decrease, unaffected: briefly explain why). Variable 2: Value of dollar in the foreign exchange market unaffected: briefly explain why). Variable 3: American goods exported to China unaffected: briefly explain why). (appreciate, depreciate, (increae, decrease,If the Fed started printing large quantities ofU.S. dollars, what would happen to the numberof Japanese yen a dollar could buy? Why
- With the strengthening of the yen against the U.S. dollar in 2010, Japan’s central bank did not take any action. A leading Japanese politician has called on the central bank to take actions to weaken the yen, saying it will help exporters in the short run and have no long-run effects. a. What is Japan’s current exchange rate policy b. What does the politician want the exchange rate policy to be in the short run? Why would such a policy have no effect on the exchange rate in the long run?Assume that Canada and the United States frequently trade with each other. Under the freely floating exchange rate system, low inflation in the U.S. will place ____ pressure on Canadian dollars (versus U.S. dollars), ____ the amount of Canadian dollars available for sale, and result in ____ inflation in Canada. a) upward; reduce; unchanged b) upward; increase; lower c) downward; reduce; lower d) downward; increase; unchanged e) None of the aboveAssume that prices are sticky in the short run. Use the MM-FX model to demonstrate the effects of each event below. After explaining your reasoning, answer clearly whether there is exchange rate overshooting in each case. In addition, display the time paths of the dollar interest rate, the euro interest rate, and the dollar-euro exchange rate. a) The US central bank decreases money supply by 5% and reverses the policy in three months. b. The US central bank decreases money supply by 5% and reverses the policy in three months. At the same time, US output declined by 2% over the same three-month period. Assume that the elasticity of money demand with respect to output is 1. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.