Exam 10: Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Describe the effects of contractionary monetary policy by the domestic Central Bank on output, the real interest rate, and net exports in both the domestic and foreign country, using a Keynesian model in the short run. What happens in the long run?

From January 1989 to January 1991, the yen/dollar exchange rate rose from 111 yen/dollar to 115 yen/dollar, while the dollar/pound exchange rate rose from 2.09 dollars/pound to 2.24 dollars/pound. As a result,

Using the IS-LM model for a small open economy, analyze the effects of the following events on output and the real interest rate in the short run and the long run. In each case, discuss the differences between the classical and the Keynesian models. a. A rise in taxes. b. A boom in the economy of the major trading partner. c. The central bank follows a contractionary monetary policy.

Purchasing power parity means that

A decrease in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.

Suppose the French franc rises against the British pound but falls against the German mark. What happens to the prices of goods imported into France?

If investors are to hold both Canadian and foreign bonds, the interest rate on Canadian bonds

The Canada-US nominal exchange and Canadian-dollar effective exchange rate are expected to move together because

Which of the following statements describes the interest parity condition?

Despite the fact the fiscal policy is not effective when dealing with recession, Canadian government conducted an expansionary fiscal policy in response to the 2008-2009 financial crisis and recession. What might explain best the rationale for this policy?

Relative purchasing power parity occurs when

Compared to a system of flexible exchange rates, currency unions have the disadvantage of

In a Keynesian model, a temporary decrease in government purchases would cause output to ________ and the domestic real interest rate to ________.