Consider an open economy IS-LM model. China's currency is the Chinese Yuan Renminbi (CNY) and the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider an open economy IS-LM model. China's currency is the "Chinese Yuan Renminbi (CNY)" and the USA's currency is the "US dollar (USD)". China has a fixed exchange rate regime with respect to USD. The central bank of China maintains a peg of 1 CNY-0.14 USD. The interest rate in the USA is 2.5%. a. What do the above facts imply about the interest rate in China? Explain. (2 points) b. Suppose that the USA experiences an increase in output Y*. With the help of a diagram explain the short-run effects of the increase in Y* on the economy of China. What happens to output and net exports? Carefully label your diagram. (2 points) c. Suppose the USA Federal Reserve Bank conducts an expansionary monetary policy and lowers its interest rate to 2%. How will the central bank of China react if it wants to maintain the exchange rate peg? What will be the effect of this on the interest rate in China? (2 points) d. Following part (c), with the help of a diagram explain the short-run effects of the foreign expansionary monetary policy on the economy of China. What happens to output and net exports? (2 points) e. Suppose instead that China decides to abandon the fixed exchange rate regime and to adopt a flexible exchange rate regime. With the help of a diagram explain how your answers in part (b) would change? What would happen to output, net exports, and nominal exchange rate? (2 points) Consider an open economy IS-LM model. China's currency is the "Chinese Yuan Renminbi (CNY)" and the USA's currency is the "US dollar (USD)". China has a fixed exchange rate regime with respect to USD. The central bank of China maintains a peg of 1 CNY-0.14 USD. The interest rate in the USA is 2.5%. a. What do the above facts imply about the interest rate in China? Explain. (2 points) b. Suppose that the USA experiences an increase in output Y*. With the help of a diagram explain the short-run effects of the increase in Y* on the economy of China. What happens to output and net exports? Carefully label your diagram. (2 points) c. Suppose the USA Federal Reserve Bank conducts an expansionary monetary policy and lowers its interest rate to 2%. How will the central bank of China react if it wants to maintain the exchange rate peg? What will be the effect of this on the interest rate in China? (2 points) d. Following part (c), with the help of a diagram explain the short-run effects of the foreign expansionary monetary policy on the economy of China. What happens to output and net exports? (2 points) e. Suppose instead that China decides to abandon the fixed exchange rate regime and to adopt a flexible exchange rate regime. With the help of a diagram explain how your answers in part (b) would change? What would happen to output, net exports, and nominal exchange rate? (2 points)
Expert Answer:
Answer rating: 100% (QA)
a If China maintains a fixed exchange rate peg of 1 CNY 014 USD and the interest rate in the US is 2... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Tom and Darla are married and have three children, ages 5, 11, and 18 years old. Their modified AGI is $68,000, and their tax liability on Form 1040, line 11 is $4,902. They claim $510 of child and...
-
Ghanas economy has been saddled with risks from foreign exchange development since the country adopted its own currency (Cedi) in July 1965 after it abandoned in 1963 the British West African...
-
What is step-down allocation? What are some criticisms of this allocation method?
-
Yilmaz SA is provided a grant by the local government to purchase land for a building site. The grant is a zero-interest-bearing note for 5 years. The note is issued on January 2, 2019, for 5 million...
-
Bombardier Inc. is one of the largest manufacturers of planes and trains in the world. The companys long- lived assets exceed $ 9 billion. As a result, depreciation is a significant item on...
-
Consider a spherical tank containing compressed air. It is known from the elementary compressible theory that if a hole is opened on the tank, the compressed air will leave the tank at a mass flow...
-
Mason Advertising Agency was founded in January 2008. Presented below are adjusted and unadjusted trial balances as of December 31, 2012. Instructions(a) Journalize the annual adjusting entries that...
-
Use the technologies: a) A starter MVC template, either from the lab or included with Visual Studio b) Razor syntax c) MVC application construction d) Some kind of value stored in the model e) A view...
-
Create common size income statements and perform a basic ratio analysis of the two companies for fiscal year 2021, which is the fiscal year ended on Jan. 29, 2022/Jan. 28, 2022. (Note: fiscal year...
-
Meddy and her mother were abandoned by her father when she was still young. Her mother single - handedly raised her, trying every means to send her to school. Meddy is now working in a government...
-
1. N Given: O is the midpoint of MN OW OM Shument Prove: OW ON 3, 5. 7. 9. X Given: mal 90 Prove: m2 90 P AW 12 U Given: mlm23 Prove: m/JOL=m&KOM 11. Q L M Given: PR LN Prove: PQ LM Q is the...
-
2) If there is a rain cover, the given unfactored dead load is 10kN/m and the given unfactored rain load is 2.5kN/m on it, compute the factored load for it. (5%) 1.3 Test of tension in a...
-
With Matlab: Problem #1 (20 points): Write a script in Matlab and save it as .m file with name HW16_1. The script will execute the following tasks: a) Let the mathematical function f(x) be defined...
-
Pre-requisite: Postman Account 1. Create New Collection (2) a. Collection Name should be {Student1FirstName}-{Student2FirstName}-Assignment6 b. Enter Collection Description C. Collection Variable:...
-
+ INNER JOINS: Join three tables: Using the Order Details, OrderHeaders, and Products tables, determine for each product the average price received in 2019 and compare this amount to the list price...
-
Five years ago, Mr Lamb (the insured) entered into a contract by which he insured both his house and contents with ABC Insurance Ltd (ABN 11 2jj 333 xxx) (the insurer). At that time his house, which...
-
Smiths Family Fashions implemented a balanced scorecard performance measurement system several years ago. Smiths is a locally owned clothing retailer with fashions for men, women, teens, and...
-
Suppose you buy three June PHLX euro call options with a 90 strike price at a price of 2.3 (/). a. What would be your total dollar cost for these calls, ignoring broker fees? b. After holding these...
-
A Dutch company exporting to France had FF 3 million due in 90 days. Suppose that the spot exchange rate was FF 1 = DFl 0.3291. a. Under the exchange rate mechanism, and assuming central rates of FF...
-
Between 1981 and 1987, direct foreign investment in the Third World plunged by more than 50%. The World Bank was concerned about this decline and wanted to correct it by improving the investment...
-
The hangers support the joist in such a way that the four nails on each hanger can be assumed to support an equal portion of the load. If the joist is subjected to the loading shown, determine the...
-
The 60 mm x 60 mm oak post is supported on the pine block. If the allowable bearing stresses for these materials are oak = 43 MPa and pine 25 MPa, determine the greatest load P that can be...
-
The hangers support the joist in such a way that the four nails on each hanger can be assumed to support an equal portion of the load. Determine the smallest diameter of the nails at A and B to the...
Study smarter with the SolutionInn App