Consider Country D. the government of country D is most concerned about helping
ID: 1228536 • Letter: C
Question
Consider Country D.the government of country D is most concerned about helping its exporters be competitive on world markets.
a) will the government of country D attempt to set target exchange rate above the equilibrium rate or below the equilibrium rate?B) draw a relevant graph detailing your answer from a
c) suppose that country D accomplish it's goal by buying government bond from country E. show on MS/MD graph for country E how this affects interest rates in country E. and show on an AS/AD graph how D's purchase of bond affects the equilibrium real GDP in country E.
Explanation / Answer
A.) Below. If the exporters can, well, export their product for cheaper, they're going to be more competitive in the world market.
B.) I tried to insert a graph, but it failed me. Basically, draw a supply and demand curve. The market value will be E*(market). Shift the supply curve to the right, and call that curve Supply (market + gov't/fiscal policy). Where the new equilibrium is, it's E*(target). Notice that the price is lower with government policy. As it should be.
C.) Draw a MS/MD curve (remember, MS lines are very steep, as they are generally inelastic). The first MS line should be called MS (Country D), and the equilibrium that the first MS line makes with the MD line should be called E* (without Country E). Next, draw another MS line that's shifted right from the original. This should be called MS (Country D + Country E). The new equilibrium is E* (with Country E).
D.) Sorry, I didn't get this part. I actually have the same problem for my class. Good luck! Let me know if you figure it out.
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