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Consider these two quotes concerning recent Federal Reserve policy On December 12, 2012 the Federal Reserve issued the following statement: “In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be […]

Label each of the following statements true, false, or uncertain. Explain briefly. a. If there are no statistical discrepancies, countries with current account deficits must receive net capital inflows. b. Although the export ratio can be larger than one —as it is in Singapore —the same cannot be true of the ratio of imports to

Canada in the 1990s and early 2000s seemed to embody the paradox encapsulated by the expression “expansionary austerity.” This means while the Liberals, who gained power after the 1993 federal elections, pursued a policy of drastic public spending cuts, the economy seemed to thrive well into the 2007–2008 global financial crises. a. Go to The

Consider a world with three equal-sized economies (A, B, and C) and three goods (food, clothes, and cars). Assume that consumers in all three economies want to spend an equal amount on all three goods.  The following table shows the value of production of each good in the three economies. a. What is the GDP

Each of the governments of Brazil and Turkey has issued bonds in Brazilian real (BRL) and Turkish liras (TRY), respectively. Assume that both are one-year bonds, i.e. paying the face value of the bonds in one year.  Suppose that the exchange rate (E) is 1 Brazilian Real = 0.79 Turkish Lira. The following table shows

Retrieve the nominal exchange rates between the euro (EUR) and the South African rand (ZAR) from the European Central Bank statistics section: “Euro foreign exchange reference rates.” It is quoted as ZAR per 1 EUR. a. According to the terminology of the chapter when the ex-change rate is quoted as ZAR per EUR which of

a. National saving is defined as private saving plus government surplus, that is, S+T−G. Using equation (18.5) describe the relation between current account deficit, net investment income, and the difference between saving and investment. b. Use the World Bank data base (http://data.worldbank.org/) to retrieve annual data for your country for nominal GDP, gross domestic investment

Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition. a. In an IS-LM–UIP diagram, show the effect of an increase in foreign output, Y*, on domestic output (Y) and the exchange rate (E), when the domestic central bank leaves the policy interest rate unchanged. Explain in words.

Consider an open economy with flexible exchange rates. Suppose output is at the natural level, but there is a trade deficit. The goal of policy is to reduce the trade deficit and leave the level of output at its natural level.  What is the appropriate fiscal and monetary policy mix?

Consider a fixed exchange rate system, in which a group of countries (called follower countries) peg their currencies to the currency of one country (called the leader country). Because the currency of the leader country is not fixed against the currencies of countries outside the fixed exchange rate system, the leader country can conduct monetary