Question
In a small open economy with a floating exchange rate,
the supply of real money balances is fixed and a rise in government spending ______Solution
As G increases, IS 1 shifts to IS 2 . At new equilibrium e', interest rate also increase 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. 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 raises the interest rate, so that income must rise to maintain equilibrium in the money market.
In which of the following cities in the United States of America, Yugantar Ashram, the headquarter of Gadar Party, a liberation movement of India, was e...
In potatoes, black heart is caused by:
Identify a type of season that is NOT a part of the four seasons of India.
15 male employees or 20 female employees of a company can complete a project in 26 days. How long will 30 male employees and 12 female employees togethe...
Which of the following statements are correct in regards to Pradhan Mantri Kaushal Vikas Yojana 4 . 0?
1. Pradhan Mantri Kaushal Vikas Yojana 4...
Bhutia dance is performed in which of the following states?
The Ashtadhyayi of Panini is a renowned work on ________.
Where is the Sahara desert located?
With reference to provinces under Mauryan dynasty, which of the following pairs is correct?Â
Which of the following is NOT a priority sector under PSL (Priority Sector Lending)?