What are the new equilibrium interest rate and level

Assignment Help Macroeconomics

Reference no: EM131719466

Global Economics

Problem 1. A client, JetPort Systems Inc., of your bank has recently completed a contract to upgrade the radar installation at Sao Paulo's international airport. The Brazilian government will wire a payment of 200M Reals (BRLs) to JetPort's bank in 90 days to settle the contract. The CFO of JetPort asks the bank for 90-day forward USD-BRL exchange rate quote as a hedge against unexpected depreciation in the BRL. The spot exchange rate is S(USD/BRL) = $.40/BRL. The 90-day USD and BRL interbank lending and borrowing interest rates are iUSD = 2% and iBRL= 5%, respectively.

What is a risk-free USD-BRL 90-day forward rate quote that the bank can offer JetPort's CFO? (in USDs per BRL). Show exactlyhow the bank would set uptheforward rate in the interbank loan market.

Problem 2. Consider the economy of Hicksonia.

a. The consumption function is given by

C = 300 + 0.6(Y - T).

The investment function is

I = 700 - 80r.

Government purchases and taxes are both 500. For this economy, graph the IS curve for r ranging from 0 to 8.

b. The money demand function in Hicksonia is

(M/P)^d = Y - 200r.

The money supply M is 3,000 and the price level P is 3. Graph the LM curve for r ranging from 0 to 8.

c. Find the equilibrium interest rate r and the equilibrium level of income Y.

d. Suppose that government purchases are increased from 500 to 700. How does the IS curve shift? What are the new equilibrium interest rate and level of income?

e. Suppose instead that the money supply is increased from 3,000 to 4,500. How does the LM curve shift? What are the new equilibrium interest rate and level of income?

Reference no: EM131719466

Questions Cloud

Determine-set of measurements fits with the empirical rule : The mean for the women's right hands pans is about 20 cm, with a standard deviation of about 1.8 cm. Using the stem and-leaf plot in Figure.

Explain what clarification do you need regarding the posting : Explain What clarification do you need regarding the posting? What differences or similarities do you see between your posting and other classmates' postings?

Marketing strategy for the new dyson vacuum cleaner : Describe how you would develop the marketing strategy for the new Dyson vacuum cleaner. Given your target market (or markets) and positioning strategy

Classical ?theory-?humanistic ?theory and ?systems? theory : What ?are ?the? major? differences ?among ?classical ?theory ,?humanistic ?theory,? and ?systems? theory? in ?regard ?to organizations??

What are the new equilibrium interest rate and level : How does the LM curve shift? What are the new equilibrium interest rate and level of income - Find the equilibrium interest rate r and the equilibrium level

Create an application that records employee salaries : Create an application that records employee salaries and adds salaries up to report monthly costs using JavaScript, and jQuery.

What is a possible reason for the given outlier : In a statistics class survey, students reported their heights in inches. The instructor entered the data into a computer file and used statistical software.

Perform a comprehensive risk assessment : What steps will you take to perform a comprehensive risk assessment for your organization? Who will you need help from in performing this assessment?

Battle creek cereal company has four main products : Battle Creek Cereal Company has four main products: Corn Flakes, Frosted Flakes, Bran Flakes and Strawberry Flakes.

User Account

All Pages