Question: A country initially has achieved both external balance and internal balance. The country prohibits international financial capital inflows and outflows, so its financial account (excluding

A country initially has achieved both external balance and internal balance. The country prohibits international financial capital inflows and outflows, so its financial account (excluding official reserves transactions) is always zero because of these capital controls. The country has a fixed and defends it using official intervention. The country does not sterilize. An exogenous shock now occurs-foreign demand for the country's exports increases.
a. What is the slope of the country's FE curve?
b. What shifts occur in the IS, LM, or FE curves because of the increase in foreign demand for the country's exports?
c. What intervention is necessary to defend the fixed As a result of the intervention, how does the country adjust back to external balance? Illustrate this using an IS-LM-FE graph. What is the effect of all of this on the country's internal balance?

Step by Step Solution

★★★★★

3.38 Rating (160 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a If the countrys financial account is always zero then the countrys interest rates have no direct effect on the countrys balance of payments The FE c... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

867-B-E-I-E (1205).docx

120 KBs Word File

Students Have Also Explored These Related Economics Questions!

A country with a fixed exchange rate has achieved external balance. Government spending then increases in an effort to reduce unemployment. What is the effect of this policy change on the country's...

You, CA, have been working for Plener and Partners, Chartered Accountants (P&P), a mid-size CA firm, for three years. You have been assigned a new project for a long-term client of your firm, Oxford...

A country initially has achieved both external balance and internal balance. International financial capital is highly but not perfectly mobile, so the countrys FE curve is upward sloping and flatter...

A country initially has achieved both internal balance and external balance. International financial capital is highly but not perfectly mobile. The country has a fixed exchange rate and defends the...

Question: find the NPV, fill the rest of the table base on the provided case study. I attached 2 excel tables wich some numbers calculated and need the other number to find out base on the tables...

==>Emerging Asia, Emerging Europe, Latin America and Africa and Middle East Tables are below. Tables 1 and 2 are related with the capital flows to hypothetical emerging market countries Bonasia and...

1.Which of the following is NOT true regarding the subject matter of international finance? A. International finance studies the important trade theories. B. International finance examines the theory...

All views expressed in this paper are those of the authors and do not necessarily represent the views of the Hellenic Observatory or the LSE George Alogoskoufis Greeces Sovereign Debt Crisis:...

What are the risks associated with arbitration? Why might a company prefer to settle disputes by litigation? What are the advantages of arbitration?

Given that the relationship between GPA and IQ is stronger in high school than in college, the scatterplot for high school compared to that for college should a. less closely approximate a straight...

(a) and

S Co manufactures a single product, V. Data for the product are as follows. $ per unit Selling price 40 Direct material cost 8 Direct labour cost 6 Variable production overhead cost 4 Variable...

Use your knowledge about trade policy to evaluate each of the following statements: a. An excellent way to reduce unemployment is to enact tariffs on imported goods. b. Tariffs have a more negative...

The nation of Acirema is small and unable to affect world prices. It imports peanut at the price of $10 per bag. The demand curve is D = 400 10P The supply curve is S = 50 + 5P. Determine the free...

If tariffs, quotas, and subsidies each cause net welfare losses, why are they so common, especially in agriculture, among the industrialized countries such as the United States and the members of the...

2. Suppose Cisco Systems, Corp. is expected to pay a dividend next year of $1.15 per share. Sales and profits are expected to grow at a rate of 15% for the following two years and then at 6% per year...

2. Use the T table to compute the following. If you can't find an exact answer, give a range. (a) For a T curve on 11 df, the chance of landing to the left of 1.80 is about how much? (b) For a T...

Schwert Corp. shows the following information on its 2017 income statement: sales = $390,000; costs = $295,000; other expenses = $7,900; depreciation expense = $19,900; interest expense = $14,600;...