Question
1 (a,c ,d ) and 2
MORE PROBLEMS A ND A PPLICATIONS . If a war broke out abroad, it would affect d·The war makes US consumers uncertain the U.S. economy in many ways. Use the model of the large open economy to examine each of the following effects of such a war. What happens in the United States to sav- ing, investment, the trade balance, the interest rate, and the exchange rate? (To keep things simple, consider each of the following effects separately.) a. The U.S. government, fearing need to about the future, and the consumers save more in response e. Americans become apprehensive about traveling abroad, so more of them spend their vacations in the United States f. Foreign investors seek a safe haven for their portfolios in the United States. it may need to 2.On September 21, 1995, "House Speaker Newt Gingrich threatened to send the United States into default on its debt for the first time in the nation's history, to force the Clinton Administration to balance the budget on Republican terms" (New York Times, September 22 1995, p.A1). That same day, the interest rate on 30-year U.S. government bonds rose from 6.46 to 6.55 percent, and the dollar fell in value from 102.7 to 99.0 yen. Use the model of the large open economy to explain this event. enter the war, increases its purchases of mili- tary equpment. b. Other countries raise their demand for high-tech weapons, a major export of the United States c. The war makes U.S. firms uncertain about the future, and the firms delay some invest- ment projects.
Explanation / Answer
Answer A:-
Answer C:-
Answer D:-
Answer 2:-
As the uncertainty have risen in the economy and U.S. debt is considered to be safe haven asset. If the value of the asset is crashing and it is defaulting in its debt, will lead to huge capital flight and uncertainty is created in the environment. Since capital has flight out of the economy domestic currency has depreciated and the bond yields will substantially increase in the economy which has happen in 30-year Treasury bond.
I REQUEST YOU TO KINLDY RATE THE ANSWER AS THUMBS UP. THANKS A LOT.
