Show the effect of the foreign interest rate increase

Reference no: EM131140055

Consider a world with some capital mobility; the home country's capital account improves as domestic interest rates rise relative to the world rate of interest. Initially, the home country is in internal and external balance. (Draw the IS , LM , and BB schedules.) Assume now that the rate of interest abroad increases.

a. Show the effect of the foreign interest rate increase on the BB schedule.

b. What policy response would immediately restore internal and external balance?

c. If the authorities took no action, what would be the adjustment process along the lines described by the monetary approach to the balance of payments?

Reference no: EM131140055

Questions Cloud

Who would you consult during the risk identification phase : Who would you consult during the risk identification phase? How would you start the process of developing a risk management plan for the project? What rules are there for creating the Work breakdown structure ? Why is an accurate and comprehensive WB..

Benefits and risks of implementing virtual integration : Dell manages a small number of suppliers and serves its customers directly. It has enjoyed great success by implementing "Virtual Integration", which as described by Michael Dell seems to be a way of capturing the advantages of vertical integration w..

Develop a database of flight information : Develop a database of flight information - implement make reservation and cancel reservation functions. For make reservation menu, your program should ask the user to choose the flight available from your database.

Sole qualifier for job offer to simply an administrative : Today, as organizations continuously seek ways to discover the best talent – standardized, and/or personalized testing have gone from serving as the sole qualifier for a job offer to simply an administrative or piece of the overall hiring puzzle. How..

Show the effect of the foreign interest rate increase : If the authorities took no action, what would be the adjustment process along the lines described by the monetary approach to the balance of payments?

Extraneous material and replacing any buzz words : Rewrite each of the following sentences as precise, informative claims, by removing any extraneous material and replacing any buzz words, politispeak, and ambiguous terms with meaningful terms. “Methodically, coldly, the salty wind scratched relentle..

Collection on account from customers : For each transaction, indicate whether it would normally be recorded in a cash receipts journal, cash payments journal, sales journal, single-column purchases journal, or general journal.

Why do company operators have different informational needs : Why do a company's operators/workers, managers, and executives have different informational needs than shareholders and external suppliers of capital?

Knowledge management value adding activity in construction : -Information Technology " IT. " as a strategic resource in construction management. knowledge management as value adding activity in construction. " innovation" as a source of competitive advantage in construction

User Account

All Pages