Explain what effect each of the following events will have on the IS curve in a flexible exchange rate regime: (1 ) an increase in foreign output; (2 ) a reduction in the foreign interest rate; and (3 ) an increase in the domestic interest rate
What will be an ideal response?
An increase in Y* causes X to rise, Z to rise, and the IS curve to shift to the right. A reduction in i* will cause an appreciation of the domestic currency, a reduction in NX, and a leftward shift in the IS curve. A change in i will only cause a movement along the IS curve.
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The supply of eggs comes from chickens. The price of eggs will decrease if
A) the supply of chickens decreases. B) the supply of eggs decreases. C) the price of chickens increases. D) the demand for eggs decreases.
Consider the case of complementary goods. An increase in the demand for peanut butter can be caused by a(n)
a. decrease in consumer income b. increase in the price of jams, jellies, and preserves c. decrease in the price of bread d. drought in Georgia that destroyed 30 percent of the peanut crop e. decrease in the price of bologna