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Explain the numerical effects on both the U.S. current and capital accounts from each of these examples.
How does interest rates affect the world value of the rupee? Illustrate these effects in the market for rupees.
What is the implication of these inflation rates for the exchange rate between the dollar and the rupee?
How are government budget balances affected by countercyclical fiscal policy? Be sure to describe effects of both expansionary and contractionary fiscal policy.
Using the aggregate demand-aggregate supply model, one might argue that the economy will adjust. Why might this adjustment take some time?
Explain why the government budget deficit increases during a recession even without countercyclical fiscal policy.
Explain the difference among the three types of fiscal policy lags. What are automatic stabilizers? Which lags do automatic stabilizers affect?
Why would you implement this policy-what are the reasons why it might make sense to slow the economy through government policy?
The new classical critique of activist fiscal policy is theoretically different. Explain the difference by using a graph of the loanable funds market.
What is the difference between commodity money and fiat money? What are the three functions of money? Which function is the defining characteristic?
What are the components of M1 and M2? List them. Why is the actual money multiplier usually less than the simple money multiplier?
Why can't a bank lend out all of its reserves? How does the Fed increase and decrease the money supply through open market operations?
What is the current required reserve ratio? What would happen to the money supply if the Fed decreased the ratio?
Describe what is the largest amount by which the money supply can increase as a result of your action?
What is the value of government securities the Fed must purchase if it wants to increase the money supply by $2 million?
By how much more does the money supply increase if the Fed lowers the required reserve ratio to 7%?
Use the loanable funds market to analyze how unexpected contractionary monetary policy affects interest rates in the short run.
Who is harmed when inflation is less than anticipated? In what way are they harmed? Who is harmed when inflation is greater than anticipated?
Illustrate the short-run effects on the macro economy by using the aggregate supply-aggregate demand model.
Describe the effect on the economy during election years if market participants expect 0% inflation.
What are three problems with trade restrictions? What are three reasons often given for trade restrictions?
How might a nation's endowment of natural resources, labor, and climate shape the nature of its comparative advantage?
Why might foreign producers voluntarily agree to a quota rather than face an imposed tariff?
What are the two trade restriction policies we discussed in this chapter? Who benefits and who loses from each of these policies?
What market adjustments will ensue in this case, assuming no shipping costs or trade barriers?