Please show how to solve and explain. 1. Refer to Figure 32-2. At what real exch
ID: 1146866 • Letter: P
Question
Please show how to solve and explain.
1. Refer to Figure 32-2. At what real exchange rate is the quantity of dollars demanded equal to 500? a. 1 b. .8 c. .6 d. None of the above are correct.
2.In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then a. net capital outflow increases so the demand for dollars in the market for foreign-currency exchange shifts right. b. net capital outflow increases so the supply of dollars in the market for foreign-currency exchange shifts right. c. net capital outflow decreases so the supply of dollars in the market for foreign-currency exchange shifts right. d. net capital outflow decreases so the demand for dollars in the market for foreign-currency exchange shifts left.
3.In the open-economy macroeconomic model, which of the following increases net capital outflow? a. a fall in the real exchange rate, but not a fall in the real interest rate b. a fall in the real interest rate, but not a fall in the real exchange rate c. both a fall in the real exchange rate and a fall in the real interest rate d. neither a fall in the real exchange rate nor a fall in the real interest rate
4.Other things the same, if U.S. residents wanted to buy more foreign-made computers and foreign residents wanted to purchase more U.S. bonds then, a. U.S. net exports and the exchange rate would fall. b. U.S. net exports and the exchange rate would rise. c. U.S. net exports would fall, but what would happen to the exchange rate is uncertain. d. U.S. net exports would rise, but what would happen to the exchange rate is uncertain. 5.If imports = 500 billion euros, exports = 700 billion euros, purchases of domestic assets by foreign residents = 600 billion euros, and purchases of foreign assets by domestic residents = 800 billion euros, what is the quantity of euros demanded in the market for foreign-currency exchange? a. 500 billion euros b. 200 billion euros c. 1,100 billion euros d. 600 billion euros
Figure 32-2 p£ 15 12 R 09 0.4 05 0t 03 01 01 100 200 300 400 500 00 700 800 Quantity of DollarsExplanation / Answer
Answer 1:
Option C. At the exchange rate = 0.6, the quantity of dollar demanded equal to 500.
Answer 2:
Option B. Increase in the supply of loanable funds will shift the savings curve rightwards and thus decreases interest rates in the economy. This leads to net capital outflow from the economy and thus supply of dollar curve shift rightwards.
Answer 3:
Option B. A fall in the real interest rate lead to increase in net capital outflow of currency.
Answer 4:
Option C. This will lead to fall in the U.S. net exports as imports will rise but the impact on the exchange rate is uncertain.
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