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As G increases, IS 1 shifts to IS 2 . At new equilibrium e', interest rate also increases and i > i*. Here,2 things are happening: a) there will now be capital inflow as a result capital A/c surplus b) Since, AD and Y increased, import demand will increase which will lead to current A/c deficit. Since, the magnitude of Capital A/c surplus will be much higher than the magnitude of current A/c deficit; there is BOP surplus. As a result domestic currency appreciates; dd for rupee has increased. So, there will be capital inflow which will bring back the interest rate to its original level. As a result, exports decrease and Imports increase (imports have become cheaper) [Net exports falls] IS shifts back to initial level and equilibrium in the goods market is restored. In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending cannot change the interest rate so that net exports must fall to maintain equilibrium in the goods market.
Identify the tense of the bold word:
Atma Ram decided to walk to work.
Select the most appropriate SYNONYM of the bold word.
Some satirists are known for their trenchant style.
Which of the given options is incorrect with respect to the given pair:
Oligarchy : Monarchy
A) Torment B) Help C) Lament D) Regret
...Malice - Actions done with 'malice' have no good intention.
Choose the word which is opposite in meaning to the word - Congenial
The mountain's majesty left the hikers in awe.
14. A) Tantamount B) Natural C) Serious D) Equal
Former