1. Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly. f. An increase in domestic interest rates, all other factors being equal, increases exports. g. A fiscal expansion, all other factors being equal, tends to increase net exports. h. Fiscal policy has a greater effect on output in an economy with fixed exchange rates than in an economy with flexible exchange rates. i. Underafixedexchangerate, the central bank must keep the domestic interest rate equal to the foreign interest rates.

1. Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly. f. An increase in domestic interest rates, all other factors being equal, increases exports. g. A fiscal expansion, all other factors being equal, tends to increase net exports. h. Fiscal policy has a greater effect on output in an economy with fixed exchange rates than in an economy with flexible exchange rates. i. Underafixedexchangerate, the central bank must keep the domestic interest rate equal to the foreign interest rates.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter31: The Impacts Of Government Borrowing

Section: Chapter Questions

Problem 4SCQ: Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a...

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Which of the following best explains why a fiscal expansion tends to decrease net exports? OA. An expansionary fiscal policy leads to an increase in output, an increase in the interest rate and an appreciation of the domestic currency. The appreciation causes imports to increase whereas a higher level of output increases exports. Therefore, net exports decrease. OB. Net exports, NX NX(Y, Y, E), depend negatively on domestic output, Y, and positively on the exchange rate, E. An expansionary fiscal policy leads to an increase in output but has no impact on the exchange rate. Therefore, net exports decrease. O C. An expansionary fiscal policy leads to an increase in output, an increase in the interest rate and a depreciation of the domestic currency. Both a depreciation of the domestic currency and a higher level of output combine to decrease exports and increase imports. Therefore, net exports decrease. O D. Net exports, NX NX(Y, Y, E), depend positively on domestic output, Y, and…
3) Show AD curve for closed and open economy and derive trade balance (NX) curve from there. Explain graphically how an expansionary fiscal policy may not help a low income country eliminate trade deficit. What should be done in such a case? Clearly indicate the changes.
Which of the following is a true statement describing expansionary fiscal policy’s impact in open and closed economies? Select one: a. Expansionary fiscal policy crowds out only investment spending and purchases of consumer durables in an open economy. b. Expansionary fiscal policy crowds out investment spending, purchases of consumer durables and net exports in an open economy. c. Expansionary fiscal policy crowds out investment spending, purchases of consumer durables and net exports in a closed economy. d. Expansionary fiscal policy does not crowd out investment spending and purchases of consumer durables in an open economy.
Consider an economy (with no government) where: Xo 10,000 M= 200+0.2Y y55,000 a. Draw a net exports graph demonstrating the export and import functions, Include the intercept and slope for both functions. b. Calculate the trade surplus/deficit, and show where the equilibrium point belongs on your graph from (a). c. If the central bank raises bank rates, would we expect their NX increase or decrease? Demonstrate this change on your NX graph from (a).
g. Use a figure to explain the potential effectiveness of fiscal policy to spur on the economy under a fixed exchange rate. Diagram is given below, to answer this question consult the textbook chapter-7] 1 OUP, Y
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What is fiscal deficit and what are two reasons why this economic statistic is so closely monitored in small fixed exchange rate economies?
10. If net foreign investments are -250, what are the net exports? Can you draw any conclusions about the budget deficit?
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Assume the United States Personal Savings equals zero. Using national income accounting concepts, show what this might mean for U.S. private investment spending and the US trade relationship with the world. How would the United States finance its investment spending? How would the US finance its government budget, especially if it becomes a budget deficit? Show and explain
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