Answer to Question #195185 in Macroeconomics for Mohamad Ezzeddine

Question

In a small open market economy operating under floating exchange rate, under the complaints of capital renters claiming rental prices are too high to afford, suppose the government permanently enacted a law at time t ∗ which makes it illegal to ask more than a specific amount for real rental rate of capital. Suppose that this upper bound on real rental rate is ten percent lower than the prevailing real rental rate in the market. What happens to real rental rate, investment, real wage rate, net exports and price level in the short run and in the transition from short run to long run?

Answer 1

An open market economy is an economic system with little to no barriers to free-market activity . The real rental rate may be the consideration paid under the lease for the return received by a landlord . The investment in the open market economy enjoys high rate of interest . The real wage rate in an open economy shows the actual purchasing power of a individuals in a market .

In open market , the difference between the domestic good and foreign good shows the net exports . The short run is the time before the money supply can affect the price level in the open market economy . The long run in open market is a period in which wages and prices are flexible . in the long run , employment will move to its basic level and real GDP to potential level .