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(a) Use the Mundell-Fleming model of a Small Open Economy under Perfect Capital Mobility to illustrate the efficacy of fiscal and monetary policy under a fixed exchange rate regime and a flexible exchange rate regime. Explain how your conclusion may change if capital mobility is less perfect.

(b) Explain the expectations augmented Phillips curve. According to monetarists, the Phillips curve will hold up in the short term. What do they believe is the case in the long run? Be sure to explain and use diagrams to illustrate clearly.

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Yusra AneesLv10
28 Sep 2019
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Related questions

A. In a small open economy in a flexible exchange rate system with perfect capital mobility, there is complete ________ crowding-out of ________ policy.

a) domestic, monetary

b) domestic, fiscal

c) international, fiscal

d) international, monetary

B. If the dollar depreciates against the yen, this tends to ________ our imports of Japanese goods and ________ our exports of goods to Japan, so that our net exports ________.

a) decrease, decrease, decrease

b) increase, decrease, are unchanged

c) decrease, increase, increase

d) decrease, increase, are unchanged

E) increase, increase, increase

C. An increase in the nominal money supply will shift

a) AD up and raise the price level.

b) SAS down and lower the price level.

c) SAS up and raise the price level.

d) AD down and lower the price level.

D. A rise in the price level causes

a) movement down along an LM curve.

b) movement up along an LM curve.

c) the LM curve to shift downward.

d) the LM curve to shift upward.

Many people believe that Congress will eventually have to reduceSocial Security benefits in order to reduce the budget deficit.Although most of the changes would not take place until later,assume for the purpose of this problem that Social Securitybenefits were cut today by $100billion per year.
A) If the marginal propensity to consume is 0.8, explain what thelong-run effects would be on real GDP, public saving, and nationalsaving.
B) The US is a large open economy with a trade deficit. Use theappropriate graphs to illustrate and state what the reduction inSocial Security benefits would do to each of the following inthelong run: national saving, investment, the US real interest rate,net capital outflows, the real exchange rate, and the tradedeficit.
C) Now, consider the small open economy of Norway, which has atrade surplus. If the US, a large open economy, were to reduce itsSocial Security benefits, use the appropriate graphs to illustrateand state what would happen in the long run to Norway’s nationalsaving, investment, interest rate, real exchange rate, and tradesurplus.

1. According to the Solow model, an increase in the capital-labor ratio will a. always increase steady state consumption per worker b. reduce steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock c. always reduce steady state consumption per worker d. increase steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock

2. In a steady state a. capital and labor, by definition, are inversely related to one another b. both consumption per worker and the capital-labor ratio are constant c. consumption per worker can change, but the capital-labor ratio is constant d. consumption per worker is constant, but the capital-labor ratio can change

3. Which of the following changes would lead, according to the Solow model, to a higher level of long-run output per worker? a. An increase in the saving rate b. A lower level of capital per worker c. A decrease in productivity d. A rise in the rate of population growth

4. In the long run, a reduction in productivity will cause a. an increase in the capital-labor ratio and a decrease in consumption per worker b. a decrease in the capital-labor ratio and a decrease in consumption per worker c. a decrease in the capital-labor ratio and an increase in consumption per worker d. an increase in the capital-labor ratio and an increase in consumption per worker

5. An increase in the growth rate of population in a steady-state economy would cause a. a pivot down and to the right in the investment line b. a parallel shift downward in the investment line c. a pivot up and to the left in the investment line d. a parallel shift upward in the investment line 1 2

6. In the efficiency wage model, an increase in productivity would a. have no effect on either output or the real wage b. increase output but have no effect on the real wage c. decrease the real wage but have no effect on output d. increase output but decrease the real wage

7. Keynesian economists believe that in the short run, a. money neutrality does not exist and prices adjust rapidly b. money neutrality does not exist and prices do not adjust rapidly c. money neutrality exists and prices adjust rapidly d. money neutrality exists and prices do not adjust rapidly

8. If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would a. not shift the Phillips curve b. shift the Phillips curve to the left c. shift the Phillips curve to the right d. shift the Phillips curve to the left and shift the long-run Phillips curve to the right

9. Classical economists believe that in the short run, a. money neutrality does not exist and prices adjust rapidly b. money neutrality does not exist and prices do not adjust rapidly c. money neutrality exists and prices do not adjust rapidly d. money neutrality exists and prices adjust rapidly

10. The fact that the long-run Phillips curve is vertical implies that a. money can’t affect inflation in the long run b. money is neutral in the long run c. monetary policy can’t affect unemployment d. there is a natural rate of inflation

1. Briefly explain the shape of the per-worker production curve in the Solow model. If investment per worker initially exceeds saving per worker, how is the steady state capital-labor ratio achieved?

2. Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

3. For each of the following changes, what happens to the real interest rate and output in the short run, before the price level has adjusted to restore general equilibrium? a. Wealth declines b. Money supply declines c. The future marginal productivity of capital declines d. Expected inflation rises e. Future income rises

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