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1. Using the IS/LM/BP model and assuming perfect capital mobility, explain: a. how a decrease in foreign income affects domestic output. A decrease in foreign income encourages domestic exports to go...

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1. Using the IS/LM/BP model and assuming perfect capital mobility, explain:

a. how a decrease in foreign income affects domestic output.

A decrease in foreign income encourages domestic exports to go down as foreigners
. how an appreciation of the domestic cu
ency affects domestic output.

2. The US has experienced large and growing cu
ent account deficits for more than 20 years, whereas Japan has experienced large and growing cu
ent account surpluses for roughly the same period. The US economy has grown at faster rates than Japan’s over the past 10 years.

a. Use the relationship between the cu
ent account and GDP to explain the difference in growth rates between the two economies.

. In trade negotiations with the Japanese over the large US trade deficit with Japan, the US administration has urged the Japanese government to undertake a more expansionary fiscal policy. Explain how this might affect the US trade deficit with Japan.

3. Using appropriate models or theories, explain the economic intuition (logic) behind the following events.

a. An increase in money supply leads to a fall in short-run interest rate.

. An increase in real income leads to a rise in short-run interest rate.
Answered Same Day Jul 30, 2021

Solution

Nishtha answered on Aug 03 2021
154 Votes
Running Head: INTERNATIONAL ECONOMICS                        1
INTERNATIONAL ECONOMICS        2
INTERNATIONAL ECONOMICS
Table of Contents
1.    3
(a)    3
(b)    3
2    3
(a)    3
(b)    4
3    4
(a)    4
(b)    4
References    5
1.
(a)
The IS/LM/BP model helps in the determination of the equili
ium level of income. This model enables effect or response of income to economic shocks and policies. The model merges with the foreign exchange market that is BP curve. IS is the goods market and the LM is the money market. If there is decrease in the foreign cu
ency reserves, the country may find it difficult to import any goods and services, as there is less foreign cu
ency to pay.
Therefore, there will be less import from foreign market and it can distu
flow of goods and services in...
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