Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-691. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States? Question 54 options: Make it rise which by itself would increase U.S. aggregate demand. Make it rise which by itself would decrease U.S. aggregate demand. Make it fall which by itself would increase U.S. aggregate demand. Make it fall which by itself would decrease U.S. aggregate dem

Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-691. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States? Question 54 options: Make it rise which by itself would increase U.S. aggregate demand. Make it rise which by itself would decrease U.S. aggregate demand. Make it fall which by itself would increase U.S. aggregate demand. Make it fall which by itself would decrease U.S. aggregate dem

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 14QP

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In your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making. How does an increase in Japan’s government budget deficit affect each of the following? The real interest rate in the short run in Japan. Explain. Private domestic investment in plant and equipment in Japan. Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following. Supply of euros. Explain. Yen price of the euro To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchang market? Explain.
Suppose Americans suddenly develop a strong taste for Canadian whiskey. What happens to the demand for Canadian dollars in the foreign exchange market? What happens to the value of Canadian dollars in the foreign exchange market? What about U.S. dollars? What happens to the quantity of net exports in Canada, other than whiskey, as a result of your answer in part b? What about the U.S.?
Assume the economy is in equilibrium. If the interest rate falls, what sequence of events will return the economy to equilibrium? Bond prices rise, causing foreign investment to flow in, causing the exchange rate to fall (appreciate). Savers save more to replace lost interest earnings, consumption falls, imports rise, and the trade balance falls, causing output to fall. Total spending rises as investors move funds into foreign assets, causing the exchange rate to rise (depreciate), and the trade balance increases, causing output to rise. Total spending falls, unemployment rises, government transfers increase, inflation rises, and the exchange rate falls (appreciates).
The graph below is associated with a hypothetical country. Consider a decrease in aggregate demand (AD). Specifically, aggregate demand shifts to the left from AD₁ to AD2, causing the quantity of output demanded to fall at each price level. For instance, at a price level of 140, output is now $200 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 0 100 +-+ I I 200 300 400 500 OUTPUT (Billions of dollars) AD1 AD2 600 700 800 ?
Suppose the U.S. has an investment opportunity which costs $200 which will increase output from 100 to 110 per quarter. The investment would take effect after t = 0. What is the marginal product of capital (MPK)? What is the difference in the present value of future income in the U.S. of undertaking the investment if the real world interest rate is 8%? Should the U.S. borrow from abroad to fund the investment and why?
When a U.S. firm sells a good abroad for, say, 100 euros (assume $1.5=1 euro), U.S. net exports increase by $150. These $150 in exports can be accounted for as $150 increase in capital outflow because if the U.S. firm uses the proceeds to buy a U.S. bond, capital investment in the foreign country has increased private consumption in the foreign country increases by $150 if the U.S. firm uses the 100 euros to buy a share of stock in a foreign firm, the firm is supplying U.S. capital to that foreign firm all of the above none of the above
You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a quota on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Given this change, the dollar (appreciate, depreciate) . Fill in the following table with the effect of a quota on the following items: Supply of Loanable Funds Real Interest Rate Domestic Investment Net Exports in crease, decrease, or no change increase, decrease or no change increase decrease or no change increase , decrease or no change
Suppose a hypothetical open economy uses the U.S. dollar as currency. The table below presents data describing the relationship between different real interest rates and this economy's levels of national saving, domestic investment, and net capital outflow. Assume that the economy is currently operating under a balanced government budget. Real Interest Rate (Percent) 7 6 5 4 3 Сл 2 National Saving (Billions of dollars) 45 40 35 30 25 20 Domestic Investment (Billions of dollars) 20 30 40 50 60 70 Market for Loanable Funds Net Capital Outflow (Billions of dollars) -15 -10 -5 0 5 10 Given the information in the table above, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. (?)
You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. manufacturing industry is concerned about competition from overseas low-cost producers exporting their goods to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. Supply Demand Supply Demand QUANTITY OF DOLLARS Given this change, the dollar Fill in the following table with the effect of a tariff on the following items: Supply of Loanable Funds Real Interest Rate Net Capital Outflow Net Exports Change due to a tariff REAL EXCHANGE RATE (Units of foreign currency per dollar)
You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. manufacturing industry is concerned about competition from overseas low-cost producers exporting their goods to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. REAL EXCHANGE RATE (Units of foreign currency per dollar) Supply QUANTITY OF DOLLARS Given this change, the dollar, Demand Demand Supply ?
You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. Given this change, the dollar_______ (appreciates/depreciates). Fill in the following table with the effect of a tariff on the following items:
For the goods market of an open economy to be in equilibrium, the interest rate must be at 2% when GDP equals 120. We also know the following about consumption (C), investment (1), fiscal policy (taxes T and government expenditures G), imports (M) and exports (X) of the country: C = 20 + b*Y_{D} I = 44 T = 60 G = 22 M = 16 X = 32 where b is the marginal propensity to consume and Yo is net disposable income. What is the value of total consumption? Select one: a. 18 b. 20 C. 38 d. 120

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	Make it rise which by itself would increase U.S. aggregate demand.
	Make it rise which by itself would decrease U.S. aggregate demand.
	Make it fall which by itself would increase U.S. aggregate demand.
	Make it fall which by itself would decrease U.S. aggregate demand.