Tag: Economics – Others

Suppose a country’s central bank wants to keep the real exchange rate constant. What should it do to the real interest rate if foreign economies enter recessions? Explain your answer with a graph.
Short answer: The central bank should lower its real interest rate (by roughly the same amount as the foreign real rate falls). Intuition: foreign recessions typically lead foreign central banks to cut their interest rates. If the home real rate does not fall as well, the interest differential will induce an expected change in the nominal exchange rate and thus change the real exchange rate. To keep the real exchange rate constant the home authority must reduce its real interest rate so that expected exchange rate changes remain zero (or unchanged).
Explanation (using uncovered interest parity and the real exchange rate): Uncovered interest parity implies roughly
i ≈ i* + expected depreciation of the domestic currency
If the real exchange rate is to remain constant over time, expected depreciation must be unchanged (for a given path of relative prices). When foreign rates i* fall during a recession, holding domestic i constant would increase the expected depreciation term (creating a depreciation pressure on the domestic currency and hence a change in the real exchange rate). To offset that and keep expected depreciation unchanged, the domestic real interest rate i must fall as well.
Interpretation: point A is the initial situation (expected depreciation = 0). A fall in foreign rates shifts the UIP relation down (red dashed line). If the domestic rate does not fall, the intersection with the new line implies positive expected depreciation (point B) and a change in the real exchange rate. To restore expected depreciation to zero (keep the real exchange rate constant), the domestic rate must be reduced to the new foreign rate level (point C).

The sale of US treasury bonds by a Frenchman shows up as
none of the above
a debit on the trade account
credit on the official reserves account
a credit on the capital account

Refer to Figure 2. As more and more pillows are produced the opportunity cost of producing an additional pillowa. decreases.b. increases.c. decreases and then increases.d. remains constant.

The government could use when negative externalities are present and then they could use for positive externalities.
taxes
subsidies
antitrust policies
price control

The coefficient of determination
is equal to negative one for the poorest fit
is used to evaluate the goodness of fit
takes values between -1 to +1
is equal to zero for a perfect fit

Suppose an economy consists of the​ Coal, Electric, and Steel sectors. Denote the prices​ (that is, dollar​ values) of the total annual outputs of the​ Coal, Electric, and Steel sectors by

Select all that apply. Potential GDP corresponds to the concept of:
Responses
A. aggregate supply
B. aggregate demand
C. real GDP per capita
D. real GDP

The levels of G and T are not explained within the model of demand and supply for goods and services produced. Therefore, G and T are considered ◻ ◻exogenous and endogenous ◻endogamous

Question 4 ( 0.7 points)
Economists study incentives to predict outcomes. For example, relative pay and benefits is one reason to produce a set of goods or services vs another.
False
12
True

2Some timber-rich countries exchange raw timber as payment for goods. This is an example of
Multiple Choice
marketing
countertrade
balance of trade
rivalry conditions
trade equity