Question 1

The government of a small open economy with perfect capital mobility wants to establish a "stronger" currency by moving its exchange rate higher. Suggest both an appropriate monetary policy adjustment and an appropriate fiscal policy adjustment that would allow the economy to move to a higher exchange rate. What are the consequences of these adjustments on domestic output and net exports?

Accepted Answer

The answer of The government of a small open economy...

Question 2

Macroland is a small open economy with perfect capital mobility and a flexible-exchange-rate system. Macroland is initially in equilibrium at the natural level of output with balanced trade. Compare the impact of a tax cut in the short run (when prices are fixed) and in the long run (when prices are flexible) on: (a) output, b) consumption, (c) investment, (d) net exports, and (e) the exchange rate.

Accepted Answer

The answer of Macroland is a small open economy with...

Question 3

Compare the effects of an import quota on output under:
a.a flexible exchange rate.
b.a fixed exchange rate.

Accepted Answer

The answer of Compare the effects of an import quota...

Question 4

The "impossible trinity" refers to the idea that a country can simultaneously pursue only two of the three following policies: free international-capital flows, monetary policy for domestic stabilization, and a fixed exchange rate. For each of the following combinations indicate what the economy gives up by selecting the combination and why the omitted policy cannot be achieved:
a.a fixed exchange rate and free international-capital flows
b.a monetary policy for domestic stabilization and a fixed exchange rate
c.a monetary policy for domestic stabilization and free international-capital flows

Accepted Answer

The answer of The "impossible trinity" refers to the idea...

Question 5

Holding everything else constant, analyze the impact of an increase in the world interest rate on the output of a small open economy under a flexible exchange rate regime.

Accepted Answer

The answer of Holding everything else constant, analyze the impact...

Question 6

Holding everything else constant, compare the impact of a monetary expansion in a small open economy with a floating exchange rate and in a large open economy with a floating exchange rate on:
a. domestic investment.
b. domestic output.

Accepted Answer

The answer of Holding everything else constant, compare the impact...

Quiz 13: The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Compare the effects of an import quota on output under: a.a flexible exchange rate. b.a fixed exchange rate.

Holding everything else constant, analyze the impact of an increase in the world interest rate on the output of a small open economy under a flexible exchange rate regime.

Holding everything else constant, compare the impact of a monetary expansion in a small open economy with a floating exchange rate and in a large open economy with a floating exchange rate on: a. domestic investment. b. domestic output.