ECON 3580 Lecture Notes - Lecture 14: The Xx, Aggregate Demand, Price Discrimination

40 views3 pages

magentasardine691

17 Jul 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Effects of permanent changes in fiscal policy: a permanent increase in government purchases or reduction in taxes increases aggregate demand. Macroeconomic policies and the current account: to determine the effect of monetary and fiscal policies on the current account, Dd represents equilibrium values of aggregate demand and domestic output. As domestic income and production increase, domestic saving increases, which means that aggregate demand (willingness to spend) by domestic residents does not rise as rapidly as income and production. An increase in the quantity of monetary assets supplied depreciates the domestic currency and often increases the current account in the short run. An increase in government purchases or decrease in taxes appreciates the domestic currency and often decreases the current account in the short run. If the volume of imports and exports is fixed in the short run, a depreciation of the domestic currency. Will not affect the volume of imports or exports,

Related Questions

Just as with the price of a good, the price, or exchange rate, of a currency is determined by supply and demand. However, rather than using a traditional supply and demand analysis as shown in Marthinsen, currency traders often consider whether foreign funds will flow into or out of a country as a result of a particular economic circumstance. If foreigners wish to make domestic purchases or investments, the foreign currency must first be exchanged for the domestic currency. Thus, foreign funds flowing into a country increase the demand for the domestic currency and it appreciates. Funds flowing out reverse this process leading to depreciation of the domestic currency. In the table, place an X to indicate whether each economic condition will cause foreign funds to flow in or out of the country and whether the domestic currency will appreciate or depreciate.

Domestic circumstance	Funds flow in	Funds flow out	Currency appreciates	Currency depreciates
Real interest rates are higher than in other countries
Risk of civil war
Business taxes are raised above the world average				X
Expected stock market returns are better than elsewhere
Inflation increases
A large deposit of rare earth minerals is discovered
Rapidly growing manufacturing sector imports more foreign raw materials

ultramarinepug302

Just as with the price of a good, the price, or exchange rate, of a currency is determined by supply and demand. However, rather than using a traditional supply and demand analysis as shown in Marthinsen, currency traders often consider whether foreign funds will flow into or out of a country as a result of a particular economic circumstance. If foreigners wish to make domestic purchases or investments, foreign currency must first be exchanged for the domestic currency. Thus, foreign funds flowing into a country increase the demand for the domestic currency and it appreciates. Funds flowing out reverse this process leading to depreciation of the domestic currency. In the table, place an X to indicate whether each economic condition will cause foreign funds to flow in or out of the country and whether the domestic currency will appreciate or depreciate.

Domestic circumstance	Funds flow in	Funds flow out	Currency appreciates	Currency depreciates
Real interest rates are higher than in other countries
Risk of civil war
Business taxes are raised above world average
Expected stock market returns are better than elsewhere
Inflation increases
A large deposit of rare earth minerals is discovered
Rapidly growing manufacturing sector imports more foreign raw materials
World commodity prices (such as oil or grain) fall in a country that is a major commodity exporter
GDP increases
PI falls

orchidmosquito970

Since the United States has negative net foreignâ investment, its

A. net capital flow must be negative.

B. domestic saving must be less than its domestic investment.

C. exports must be greater than its imports.

D. domestic investment must be less than its domestic saving.

Expansionary fiscal policy is less effective in an open economy because

A. increases in the money supply will reduce interest rates and lower the value of theâ dollar, reducing aggregate demand.

B. increases in government spending can increase interestâ rates, which increases the value of the dollar and crowds out net exports.

C. increases in government spending will be partly spent on importedâ goods, which do not benefit the domestic economy.

D. increases in taxes reduceâ consumption, which in turn reduces consumption of imports and increases net exports.

When the Federal reserve uses contractionary monetary policy to reduceâ inflation, it

A. sells treasury securities increasing interestâ rates, leading to a stronger dollar that lowers net exports in an open economy.

B. buys treasury securities decreasing interestâ rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.

C. sells treasury securities decreasing interestâ rates, leading to a stronger dollar that lowers domestic investment in a closed economy.

D. buys treasury securities increasing interestâ rates, leading to a weaker dollar that increases net exports in an open economy.

If a country saves more than it investsâ domestically, then its net foreign investment must be (positive, negative, or zero)?

ECON 3580 Lecture Notes - Lecture 14: The Xx, Aggregate Demand, Price Discrimination

Document Summary

Get access

Related Documents

ECON 3580 Lecture Notes - Lecture 13: Fiscal Policy, Monetary Policy, Aggregate Demand

ECON 3580 Lecture Notes - Lecture 11: Exchange Rate, Disposable And Discretionary Income, Aggregate Demand

ECON 3580 Lecture Notes - Lecture 12: Aggregate Demand, Money Supply, Money Market

Related Questions