Econ 342 Assignment 2-Due April 5, 2016
Explain how the BP, IS, and LM curves establish equilibriums for given levels of income and interest rates. (22 Points)
Fully explain the effects on equilibrium domestic output and the exchange rate from increases and decreases in government spending under fixed and flexible exchange rates with mobile and immobile capital. (30 Points)
Fully explain the effects on equilibrium domestic output and the exchange rate from increases and decreases in foreign income under fixed and flexible exchange rates with mobile and immobile capital. (30 Points)
Fully explain the effects on equilibrium domestic output and the exchange rate from increases and decreases in the foreign money supply under fixed and flexible exchange rates with mobile and immobile capital. (30 Points)
Fully explain the effects on equilibrium domestic output and the exchange rate from increases and decreases in the domestic money supply under fixed and flexible exchange rates with mobile and immobile capital. (30 Points)
Fully explain the effects on equilibrium domestic output and the exchange rate from increases and decreases in preferences for foreign goods under fixed and flexible exchange rates with mobile and immobile capital. (30 Points)
Explain the conditions necessary for an unstable foreign exchange market and how that will affect the automatic adjustment process under flexible exchange rates. (15 Points)
Fully explain the short and long run exchange rate adjustments under fixed and flexible exchange rates. (40 Points)
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