OPEN-MARKET MACROECONOMICS, Macroeconomics



Macroeconomics: Question 1 and 2 relate to content and skills covered --- OPEN-MARKET MACROECONOMICS: BASIC CONCEPTS , International Trade and Exchange Rates

Question 3 relates to content and skills covered in A MACROECONOMIC THEORY OF THE OPEN ECONOMY, The Open Economy

Question 1

Word limit: Approximately 100-200 words Marks: 5 marks

Clearly explain how net foreign investment links the market for loanable funds and the market for foreign currency exchange. Make sure you define net foreign investment in your answer.

Question 2 Word limit: Brief answers for each question – approximately 100-200 words in total Marks: 5 marks



a) Clearly differentiate between real and nominal exchange rates. (2 marks)

b) In terms of the real exchange rate, what three variables could change to make a country less competitive internationally? (1 mark)

c) Assume that a Mazda 2 sells for 16,000 Australian dollars in Australia and 10,000 Canadian dollars in Canada If purchasing-power parity holds, what is the Canadian dollar/Australian dollar exchange rate? How many Australian dollars will a Canadian dollar buy? Make sure you show your calculations. (2 marks)

Question 3 Word limit: Approximately 500 words Marks: 20 marks Use a diagram of the open economy model (e.g. fig 32.4 from the text) to illustrate and explain the effect of the following event on the market for loanable funds, the level of net foreign investment and the market for foreign-currency exchange.

In your answer make sure you discuss the impact on the following variables:

• Interest rates, public savings, private savings, national savings, investment, net foreign investment, supply of currency, the exchange rate and the level of net exports.

Event: There is an increase in consumer confidence in the economy

Note: Ignore the detail and politics of this event. Focus only on analysing the market adjustment in each case. ------------------------------------

Marking Criteria for Question 3

Use the equation for national savings = investment to determine which curve is affected and why. 1 mark

Correct diagram – fully labelled showing initial equilibrium in each market and correct adjustments to new equilibrium 4 marks

Explanation of events that occur within the market for loanable funds:

• Direction of shift of correct curve

• Problem within the market for loanable funds that now exists at the initial interest rate

• Adjustment process to new equilibrium 5 marks

Explanation of events that occur in the net foreign investment diagram: Shift or movement of NFI curve? Why? 2 marks

Explanation of events that occur in the market for foreign currency exchange: Which curve shifts/why/which direction? Problem within the market for foreign currency exchange that exists at the initial exchange rate Adjustment process to new equilibrium 5 marks

Overall impact on the level of interest rates, public savings, private savings, national savings, investment, net foreign investment, supply of currency, the exchange rate and the level of net exports. 3 marks

Posted Date: 9/30/2012 2:11:06 PM | Location : United States







Related Discussions:- OPEN-MARKET MACROECONOMICS, Assignment Help, Ask Question on OPEN-MARKET MACROECONOMICS, Get Answer, Expert's Help, OPEN-MARKET MACROECONOMICS Discussions

Write discussion on OPEN-MARKET MACROECONOMICS
Your posts are moderated
Related Questions
Determine the exchange rate When a currency is freely floating, the central bank doesn't have to set monetary policy to alter the external value of the currency unless instruct

COMPONENTS OF TRADE POLICY: External sector reforms beginning with 1991 included dismantling of  trade restrictions along with tariff rationalization, a move towards current a

Using the Mundell-Fleming model, describe how an increase in a country’s risk premium on the world interest rate can result in a higher level of real income. Under what circumstanc

A person chooses between leisure and consumption. All of their consumption comes from current income. The utility derived from any combination of leisure and consumption is given b

Q. Relationship between L and P? • As long as L is smaller than LB, L may change with no change in prices. In this range, there is no relation between L andP. • When L is betw

Suppose that this year's the money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5trillion. a. What is the price level? b. What is the velocity of money

Q. Is Household savings depend on GDP in the cross model? Household savings depends on Y since S H = Y - C - NT and C and NT both rely on Y. How it depends on Y can't be concl

Price Mechanism Price mechanism is the point, which equilibrates supply and demand within a market. It is a mechanism of pricing. The price mechanism is one, which permits the p

using the marginal utility theory explain the consumption patten of consumers

explain approaches of national income?