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Analyze the effects of each of the shocks below using the three diagrams I have been using in class: the IS-LM diagram, the money market diagram, and the FX market diagram. In each diagram, use point A to identify the initial, pre-shock macro equilibrium; use point B to identify the new equilibrium once the economy has adjusted to the shock, assuming no change in the money supply; use point C to identify the new equilibrium assuming that the home country adjusts its money supply to keep domestic output (Y) at its initial, pre-shock level; and use point D to identify the new equilibrium assuming instead that the central bank adjusts the money supply to keep the exchange rate at its initial, pre-shock level. So, for each shock, there will be three diagrams with each diagram containing the four points A-D. Be sure to label your diagrams fully and show all of the involved shifts of curves.
Do this for each of the following shocks:
1. an increase in the home country's individual income taxes (T)
2. an increase in foreign output/income (Y*) - assume there is no change in the foreign interest rate.
3. an increase in home country money demand (L)
4. a drop in the expected future value of the home country's currency exchange rate
Think the problem of maximizing u(c,l) subject to pc + wl = w + y, where c is consumption, l (element of (0,1)) is leisure time, and y is non-wage income.
Which are preferable and why, fixed, flexible, or a mixture of the two exchange rates? What nations have officially dollarized their economies. How does United States benefit from it?
Focusing on the production of a nation other than the US. Determine what is currently going on with the Canadian Automotive Industry and explain why is this important?
Calculate Jill's economic profit and what makes economic profit different from accounting profit and find the profit- maximizing price and quantity in each market.
Trade liberalization makes poor nations worse off because it displaces domestic production. It would be better to save fledgling domestic manufacturers from import competition in order to endorse industrial development.
The given matrix shows the payoffs for an advertising game between Coke and Pepsi. The companies can choose to advertise or to not advertise.
Suppose if you were chief economic advisor to the President at present, what are the 3-recommendations you would make to him to improve overall effectiveness of the economy?
Your proposal to develop into 3-countries was approved by CEO. Now you have to make decision on a strategy - will PM firm simply sell its item or expand its markets via investment?
Before one year Polish zloty was PLN 3.8000/USD. Since then the sloty has fallen 14 percent against the dollar. Price levels in the US have not changed, but Polish price has gone up 7 percent
Assume the exchange rate between United State, dollars and the Swiss franc was SFr1.6=$1, and the exchange rate between United State dollars and British pound was L1=$1.50.
Choose a nation with international trade activities. Discuss the comparative advantage that would exist when selected nation has a margin of superiority.
Questions based on International Business
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