Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

In our model, we assumed that net exports could be specified as follows: ? = jQuery22409574209035665553_1596134117980 + ??(?) However, we know that when the central

In our model, we assumed that net exports could be specified as follows: ? = jQuery22409574209035665553_1596134117980 + ??(?) However, we know that when the central bank lowers interest rates, the return on domestic assets falls relative to foreign assets. As a result, the value of domestic assets relative to other currency assets falls, and the domestic currency depreciates. The lower value of the domestic currency makes domestic goods cheaper than foreign goods, thereby leading to expenditure switching and a rise in net exports. Thus, we should include interest rate as one of the determinants in the net export function (similar to the way we introduce interest rate in the consumption and the investment functions).

Question One: Explain how the effectiveness of contractionary monetary policy (d < 0) and Fiscal policy (d< 0) depends on the magnitude of the response of NX to changes in r or dNX/dr. Make sure to provide your answer with the relevant graphs, mathematical equations, and economic interpretation.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Time Series For Financial Applications

Authors: Massimo Guidolin, Manuela Pedio

1st Edition

0128134100, 9780128134108

More Books

Students also viewed these Economics questions

Question

When is the flow through a control volume steady?

Answered: 1 week ago