Use the first model in this chapter to answer this question. Suppose that governments in the rest of the world impose a tax on lending to foreigners. Determine how this affects consumption plus government spending in the present and the future, and the current account surplus. Explain your results.
Answer to relevant QuestionsSuppose in the first model in this chapter that there is a limited commitment friction and the possibility the nation could default in the current or future periods. Suppose that, if the nation does not default, then the ...Suppose that there is a cost to carrying out transactions in the foreign exchange market. That is, to purchase one unit of foreign currency requires e(1 + a) units of domestic currency, where e is the nominal exchange rate ...Suppose that capital controls take the form of a total ban on capital inflows, but all capital outflows are permitted. Also suppose that initially the current account surplus is zero. Determine the effects of a temporary ...Suppose that consumers are concerned about theft, and so they are willing to use banks for some of their transactions even if the nominal interest rate is zero. Further, suppose that, the more currency consumers hold, the ...Suppose that the inflation rate is higher than i*, that the central bank announces it will reduce the inflation rate, and that it actually proceeds to do this. Answer the following:(a) Suppose that the private sector ...
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