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The following questions are based on fixed exchange rate and/or flexible exchange rate regime from the perspective of macroeconomic policy implications in an open macroeconomic model. The answers must be written in your words along with graphical illustration, if appropriate. Without explaining in your words, the graphical illustration alone will not be credible. Also make sure you use the relevant symbols and notation on each of the lines and axis on the graph(s) to clearly indicate the working mechanism of variables. a. Assume a country is in a fixed exchange rate regime such as China. Explain what factors might cause individuals to expect that a country will devalue its currency. Explain the various actions that policy makers can choose in response to this expected devaluation. Hint: As part of your answer, you may give the example of the most recent (Aug 11 and 12, 2015) devaluation of Chinese currency (Yuan or Renminbi) by more than 2% against its major composite currency index. b. Assume a country is in a fixed exchange rate regime. Now suppose that individuals expect that policy makers will devalue its currency. Explain the various actions that policy makers can choose in response to this expected devaluation. c. Suppose the economy is operating below the natural level of output. Discuss the arguments for and against using devaluation in such a situation. d. Suppose the economy is initially operating above the natural level of output. In a fixed exchange rate regime, explain how the economy will adjust to this situation.
Republican presidential candidate Donald Trump is a multi-billionaire who claims that, if elected, he would run the country like a business firm. Using the economics of the firm, explain why this may not be so
elucidate what economic factors may influence such behavior
Imagine that you are a business owner. Choose whether to hire a new person in the marketing department or upgrade your computer system.
Growth rates in the Solow model (II): Suppose an economy begins in steady state and is characterized by the following parameter values: s 0.2, d 0.1, A 1, L 100. Apply your answer to question 8 to calculate the growth of per capita GDP in the period ..
The Supply curve
When the Euro was introduced in 1999, the exchange rate was $1.19 per euro. In March 2011, the exchange rate was $1.42 per euro. Was this change in the dollar-euro exchange rate good news or bad news for U.S. firms exporting goods and services to Eur..
Why is it difficult to analyze the welfare implications of growth in the neoclassical model? What proxy is often used to reach a conclusion about the effects of growth? What leads to the conclusion that, if welfare is to improve with growth in the la..
How does the institution-based view complement and differ from the industry-based and resource-based views? Why has the institution-based view become a third leg in the strategy tripod?
suppose nominal GDP in 2012 was $100 billion and in 2014 it was $220 billion. The general price index in 2012 was 100, and in 2014 it was 140. Between 2012 and 2014, the real GDP rose by what percent? What is the size of the labor force in the United..
Earl sells lemonade in a competitive market on a busy street corner in Philadelphia. His production function is f(x1, x2) = x1^1/3 x2^1/3, where output is measured in gallons, x1 is the number of pounds of lemons he uses, and x2 is the number of labo..
Consider an open economy with fixed exchange rates. Suppose that foreign goods become more fashionable--that is, the demand for foreign goods at a given exchange rate increases. Describe how this change affects output and the interest rate if: a) the..
Queen Elizabeth has decided to auction off the crown jewels, and there are two bidders: Sultan Hassanal Bolkian of Brunei and Sheikh Zayed Al Nahyan of Abu Dhabi. The auction format is as follows: The Sultan and the Sheikh simultaneously submit a wri..
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