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What is meant by a closed economy? by desired or planned investment, consumption, and saving? What is meant by investment being exogenous?
How does the automatic income adjustment mechanism operate to bring about adjustment in a nation's balance of payments?
What are the advantages of direct controls? Why do direct controls to affect the nation's balance of payments require international cooperation to be effective?
What are the criticisms faced by the policy mix of using fiscal policy to achieve internal balance and monetary policy to achieve external balance?
What does the IB curve show? Why is it positively inclined? What does the EB curve show? Why is it positively inclined?
Why is monetary policy completely ineffective with perfect international capital mobility under fixed exchange rates?
How can fiscal and monetary policies be used to achieve full employment and external balance under fixed exchange rates and limited international capital.
What effects do expansionary and contractionary fiscal policies have on the IS curve? What effects do easy and tight monetary policies have on the LM curve?
What is meant by the transaction and speculative demands for money? Why is the LM curve usually positively inclined?
How does the Swan diagram help us determine the policy mix to reach external and internal equilibrium simultaneously?
What are the four zones of external and internal imbalance defined by these two curves? What does the point of intersection of the EE and YY curves show?
What is meant by the principle of effective market classification? Why is it crucial that nations follow this principle?
What policies can nations utilize to achieve their objectives? How do these policies operate to achieve the intended objectives?
Why do nations need policies to adjust balance-of-payments disequilibria? Which are the most important objectives of nations?
What is the prevailing view today as to the stability of foreign exchange markets and the elasticity of the demand and supply curves of foreign exchange?
Why will a depreciation of the deficit nation's currency increase rather than reduce the balance of-payments deficit when foreign exchange market is unstable?
What is the Marshall-Lerner condition for a stable foreign exchange market? for an unstable market? for a depreciation to leave the nation's balance of payment.
What shape of the demand and supply curves of foreign exchange will make the foreign exchange market stable? unstable?
How is the nation's demand curve for foreign exchange derived? What determines its elasticity?
Why is a depreciation or devaluation of the nation's currency not feasible to eliminate a deficit if the nation's demand and supply curves of foreign exchange.
How does a depreciation or devaluation of a nation's currency operate to eliminate or reduce a deficit in its current account or balance of payments?
Explain the exchange rate dynamics of the dollar resulting from an unanticipated increase in the money supply by the EMU central bank.
When would the expected change in the exchange rate equal the forward discount or forward premium on the foreign currency?
Explain why, if the first nation would otherwise face no inflation at home, it will not be able to maintain in the long run constant prices.
Suppose that a nation's nominal GDP = 100, V = 4, and Ms = 30. Explain why this nation has a deficit in its balance of payments.