How does the open-economy IS-MP model incorporate net exports with a floating exchange rate system?
What will be an ideal response?
The impact of the real interest rate on the floating exchange-rate system makes total expenditures more responsive to changes in the real interest rate, causing the IS curve to be more elastic (flatter). For example, an increase in the real interest rate increases the exchange rate, decreasing net exports. So, the higher real interest rate decreases not only investment and consumption expenditures, but also net exports.
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Indicate whether the statement is true or false
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Answer the following statement true (T) or false (F)
Which of the following transactions would be included in the calculation of Gross Domestic Product (GDP)?
A. the purchase of a second-hand lawnmower from your neighbor B. the purchase of a share of stock in Apple C. the purchase of wheat by a baker to make bread D. the purchase of legal services
There are many wheat farmers in the world, and there are also many McDonald's restaurants in the world. Why, then, does a McDonald's restaurant face a downward-sloping demand curve while a wheat farmer faces a horizontal demand curve?
What will be an ideal response?