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Use the Mundell-Fleming model to try to understand the basis for this criticism and show a possible policy that Germany might pursue that could have a beneficial impact on another member country of the euro zone. (Hints: 1. assume that there are two countries, Germany and Spain; 2. both of these countries are in the euro zone and neither can run independent monetary policies (i.e. for each country inside the zone the money supply adjusts automatically to preserve equilibrium); 3. there is perfect capital mobility; 4. prices remain constant in both countries; and 5. assume Spanish exports to Germany will rise if German GDP rises.)
a. Given the hints above, how do the equation(s) of the model (presented in Chapter 7) change for Spain? Describe any new parameter(s) required for the model.
b. Assuming that Germany wants to be helpful to its neighbors, what does the model suggest that Germany should do to address the criticism described above? In a set of graphs, show the impact of your recommendation on the German and Spanish economies. In the new equilibrium, what will be the impacts on German and Spanish output levels, interest rates, and CABs? Explain in a sentence or two.
If the Fed intends to decrease the money supply, what tools can be used? Briefly explain how each tool should be implemented.
Assume that the wholesale skim milk market is perfectly competitive. Suppose demand is described by P=5.10-0.80Q and supply is described by P=1.90+0.20Q. If there are no price controls, what would be the equilibrium quantity?
Suppose that a store will sell 2000 boxes of bananas a week at a price of $12 per box. If the store raises its prices to $15 per box, it will sell 1500 boxes. What is the elasticity using the original formula? What is the elasticity using the midpoin..
Suppose the government imposes a 20-cent tax on the sellers of artificially sweetened beverages.
Gator Fabrics Inc. currently has zero debt (i.e., wd = 0). It is a zero growth company, and additional firm data are shown below. Now the company is considering using some debt, moving to the new capital structure indicated below. If this plan were c..
Now suppose the economy currently produces 2,500 garments of clothing and 3,000 bushels of wheat, illucidate which is represented by point B. Under these conditions, the opportunity cost of producing an additional
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assume an urban clusters income i is given by the function i4n-0.05n2 where n denotes the clusters population in
While generics account for more than three quarters of all prescription drugs sales by volume, they account for only 10% of all prescription sales revenues. It was not until after World War II, that it became clear that control over drug safety mecha..
Suppose an economy's real GDP is $50,000 in year 1 and $53,500 in year 2. What is the growth rate of its real GDP between year 1 and year 2? Assume that population is 100 in year 1 and 103 in year 2. What is the growth rate of real GDP per capita?
If the original supply curve of cocaine on the streets was horizontal, what is the net effect of police activities on the market for crack in this city. Compute the value for p that prevails before police intervention in the market.
In the medical care sector, the decisions of what services should be produced, how they should be produced, how they should be distributed, and how to allow for growth and innovation must be made. What combination of non-medical and medical goods and..
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