Slides2 Flashcards
Is fiscal or monetary policy more effective in an open economy
Monetary policy as fiscal policy is weakened when counteracted by foreign influences
Is fiscal or monetary policy more affective in stabilizing an economy with fixed exchange rate
Fiscal policy is more affective as there is basically no monetary policy, economy can be stabilized through spending, re and de valuation
Assume that the interest parity condition holds. Also assume the us interest rate is 8% while the uk interest rate is 6%. How will the financial markets expect the pound to depreciate or appreciate
Appreciate by 2% so they become equal?
Assume that the interest parity condition holds and that the dollar is expected to depreciate against the pound. What do we know about the us interest rate
That it is larger than the poundz
A reduction in the real exchange rate will cause
A reduction in the quantity of imports
What will happen to the investment, consumption and the domestic currency when the economy moves up and to the left of the IS curve if exchange rates are flexible
I and C decreases while e appreciates
In an open economy how would decreased government spending affect imports
It would reduce it as the central bank lowers interest rates which makes domestic wares more attractive
Assume simultaneous tax increase and monetary expansion, what would happen to the exchange rate
It would decrease, while output may stay the same
What is the mission of a central bank in a fixed exchange rate regime
That i=i* is their target
How will a higher savings rate affect a nation in the short run
Decreased consumption if no massive boost in confidence at decreased deficit
How will higher savings affect a nations economy in the long run
Increased output but no sustained gain in growth rate, just a bump. Also higher consumption due to more capital per worker if at golden ratio
What how does expectations affect monetary policy
Monetary policy is weaker if denizens think it is transitory
Why would you argue that decreasing the deficit is good for consumption in the long run
If you think the multiplier is small the decreased effect on consumption of government spending will be dwarfed by the increase in output from improved expectation. If you believe it is large you likely think that consumption will decrease short term
How does a reductions in expected future taxes affect the IS curve
It shifts it to the right as peoples expected total wealth increases leading to greater consumption
When will a reduced money supply always decrease output
When accompanied by bad news
What can the central bank do to the IS LM curves to change expectation
Move the LM curve
What is the growth rate of effective labor
ga+gn aka the technological growth rate plus the growth rate of the population
What is the most common measurement of changing living standards
The growth rate of real gdp per capita
If output per capita grows at 6% per year how much will it have grown in 3 years
19%
Assume that there is an increasing return to capital, increasing return to labor and constant return to scale. What will happen to output if both labor and capital decrease by 5%
It will decrease by 5%
When using a logarithmic scale to plot output per capita over time an upward sloping curve that becomes increasingly steep indicates
Output per capita is growing by an increasing percentage each year
Assume no population or technology growth, how do you calculate the change in capital stock
Investment minus depreciation
In the production function a 20% increase in A will lead to what concerning labor
20% increase in effective labor
What does constant return to scale imply for the production function
That when K and N or A increases by some % the entire function does so
