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A Starbucks coffee sells for 10 yuan in Beijing, China, and for $2 in Chicago. Calculate the nominal exchange rate if the law of one price holds.
For each case explain what prevents the law of one price from holding a ton of sugar in the United States and a ton of sugar in Brazil.
In March 2010, the exchange rate was 1.8 real per dollar. Graph the foreign exchange market in March 2009 from the U.S. perspective.
What would be the effect on the spot exchange rate for the U.S. dollar? Explain your answer using a graph.
What would be the effect of the increase in revenues from oil exports on Brazil's exchange rate?
How would this event affect the demand curve for real money balances? On the same graph, draw the original and the new demand curve, if necessary?
Would you expect the monetary policy curve to shift upwards or downwards? What would be the effect on the aggregate demand curve?
Find the expression for the aggregate demand curve. Calculate aggregate output when the inflation rate is 2%, 3% and 4%.
Calculate the real interest rate when the inflation rate is 2%, 3%, and 4%. Plot the monetary policy curve and identify the previous points. r = 1.5 + 0.75 p.
What condition is required for equilibrium in the money market? Why does the money market move toward equilibrium?
In Keynes's liquidity preference theory, what variables determine the demand for real money balances?
What is the real interest rate? Why can the Fed control the real interest in the short run but not in the long run? What is the monetary policy curve?
On Friday, February 19, 2010, the Federal Reserve announced an increase in discount rate. Comment on effect of an increase in interest rates on the IS curve.
Calculate the decrease in autonomous consumption expenditure necessary to offset the effect of the $93 billion tax cut.
Calculate Dell's inventory investment in 2010. What happens to inventory spending during the early stages of an economic recession?
What does the IS curve show? Why does it slope downward? What causes the IS curve to shift? Calculate spending in net exports.
How and why do changes in the real interest rate affect net exports? What condition is required for equilibrium in the goods market?
What are the two types of planned investment spending? What are four components of planned expenditure and why did Keynesian analysis emphasize this concept?
Do you think that the hourly wage (i.e., the price of labor) is a relatively flexible or a relatively sticky price? Explain why.
If the public came to expect higher inflation rates in the future, what would be the effect on the short-run aggregate supply curve?
Why does the short-run aggregate supply curve slope upward? What causes the long-run aggregate supply curve to shift?
What relationship does the aggregate supply curve describe? How is this relationship depicted with the long-run aggregate supply curve?
According to expectations-augmented Phillips curve, what factors determine the rate of inflation? How do changes in each factor affect short-run Phillips curve?
What basic relationship does the short-run Phillips curve describe? What trade-offs does this relationship seem to offer policy makers?
Explain the relationship between inflation and unemployment during 2007 using the modern Phillips curve concept.