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Using the prices in the closed economy, you should be able to determine the pattern of trade in a similar fashion for the other country pairs.
Between 1970 and 1995, the dollar depreciated sharply versus the Japanese yen, while the average value of this exchange rate. What might explain these facts?
Why would we expect the law of one price to hold in principle? Why might it fail to hold in practice?
How and why are net exports and investment similar in the short-run model? Does this similarity make the IS curve steeper or flatter?
Does the dependence of net exports on the real exchange rate make the IS curve steeper or flatter? What is the economic interpretation of this result?
If the Federal Reserve raises interest rates, what would happen to the peso-dollar exchange rate in the absence of any change in Mexican interest rates?
Use the AS/AD model to explain how and why this affects the U.S. economy in the short run. How does the economy return to steady state?
Use the AS/AD framework to explain the effects of this shock on the U.S. economy. Be sure to explain carefully how and why the shock enters the AS/AD model.
Use the AS/AD framework to explain the effects of this shock on the U.S. economy.
Yet the chapter claimed that an open economy can only achieve two of these policy goals. How do we understand this apparent contradiction?
How large were the declines in GDP per worker in each country, and how quickly did the regions recover?
Provide your advice in a one-page policy memo, outlining the pros and cons of your position.
This example helps us to think about why all three goals of the policy trilemma cannot be achieved simultaneously, at least in the long run.
In which type of society do people work to produce either all or most of the things they and their families want and need?
What happens to the desired capital stock? What happens to investment? Hard: What happens to the investment rate in the long run? Why?
How does the Ricardian equivalence argument apply in this case? How will consumption respond according to this argument?
Discuss what happens to the labor demand schedule? What is the effect on the real wage and employment in the short run?
What is an intertemporal budget constraint, and where does it come from? What is the economic interpretation of the intertemporal budget constraint?
How are interest rates and growth rates related according to the neoclassical consumption model, and why?
Explain what is the marginal propensity to consume? How is it affected by borrowing constraints or precautionary saving issues?
Summarize the key facts about the behavior of the personal saving rate during recent decades, and place these facts in their macroeconomic context.
How much does a neoclassical consumer consume today and in the future? What happens to total wealth and consumption today?
What is the individual's human wealth? Total wealth? By how much does consumption today rise if future labor income rises by $10,000?
Suppose the stock market booms, doubling in value. By how much do consumption and saving change today?
If the real interest rate is 5 percent and C = 1, what growth rate for consumption will households choose?