) Mundell – Fleming model and theory of optimum common currencies a) Assuming perfect capital mobility and flexible exch
Posted: Thu May 05, 2022 7:02 am
) Mundell – Fleming model and theory of optimum common
currencies a) Assuming perfect capital mobility and flexible
exchange rates, explain the impact on the Canadian economy of a
decrease in interest rates in the U.S. In your answer, clearly
indicate the effect on income, rate of interest, balance of
payments. (Show your answer with the help of an IS-LM-BP diagram
and explain the mechanisms. Consider Canada a small economy taking
the U.S. interest rate as given). (10 marks) b) Now drop the SOE
assumption and assume the economy is large. In what way does this
change your answer? Describe briefly using a graph. (5 marks) c)
Describe how the Mundell – Fleming model can help us explain the
1997 Asian crisis. (10 marks) d) Discuss how a shift in consumer
preferences away from Irish products towards German products
affects the output of the two countries. Assume a flexible exchange
rate regime. Your discussion should be brief and use graphs (AD,
AS).
currencies a) Assuming perfect capital mobility and flexible
exchange rates, explain the impact on the Canadian economy of a
decrease in interest rates in the U.S. In your answer, clearly
indicate the effect on income, rate of interest, balance of
payments. (Show your answer with the help of an IS-LM-BP diagram
and explain the mechanisms. Consider Canada a small economy taking
the U.S. interest rate as given). (10 marks) b) Now drop the SOE
assumption and assume the economy is large. In what way does this
change your answer? Describe briefly using a graph. (5 marks) c)
Describe how the Mundell – Fleming model can help us explain the
1997 Asian crisis. (10 marks) d) Discuss how a shift in consumer
preferences away from Irish products towards German products
affects the output of the two countries. Assume a flexible exchange
rate regime. Your discussion should be brief and use graphs (AD,
AS).