How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market
What will be an ideal response?
An increase in government purchases financed by an increase in the deficit will reduce the supply of loanable funds, thereby increasing the interest rate. The increase in the interest rate will increase the demand for dollars (as capital inflows increase) and reduce the supply of dollars (as capital outflows decrease). Both the increase in the demand for dollars and the decrease in the supply of dollars will increase the equilibrium exchange rate, as shown below.
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The paramount goal of a firm is to
A) maximize profit. B) maximize sales. C) maximize total revenue. D) minimize costs. E) force its competitors into bankruptcy.
The maximum profit for a single-price monopoly is found when the firm produces the level of output so that
A) marginal revenue equals marginal cost. B) price equals marginal cost. C) it can charge the highest possible price. D) marginal revenue exceeds marginal cost by as much as possible. E) total revenue equals total cost.