Macroeconomics Answers

Mark policy tools in the Mundell-Fleming model that are not effective in the economy. (a) Lowering taxes in a flexible exchange rate regime.
(b) Lowering government expenditure in fixed exchange rate regime.
(c) A one-time devaluation of currency in a fixed exchange rate regime.
(d) Expansionary fiscal policy in flexible exchange rate regime.

Mark correct statements about the FE curve in the Mundell-Fleming model.
(a) With perfectly mobile capital, the FE curve moves parallely up or down only if the world interest rate changes.
(b) The FE curve depicts all combinations of the nominal exchange rate and GDP that guarantee an equilibrium on the FE market.
(c) The FE curve is obtained using the condition CA + CP = 0.
(d) If capital flows are fully restricted, the FE curve is vertical.

The Mundell-Fleming model is a model of (several answers possible): (a) small open economy in the short run (b) a large open economy in the short run (c) a small open economy in the long run (d) a small closed economy in the short run

Imagine that the price level abroad is twice as high as in home (‘our’) country. mark correct statements.(several possible)

(a) The (absolute) purchasing power parity equals 1.
(b) The (absolute) purchasing power parity equals 1/2.
(c) If E = 0.75 the home currency is undervalued.
(d) If the home currency is undervalued it means that the same goods, on average, have higher prices abroad than in our country.

Mark correct statements about the balance of payments (BoP). (several answers possible)
(a) BoP is always balanced, literally speaking, because it is an accounting identity.
(b) If the current account (CA) in the BoP is in surplus, it means that the country exports more goods and services than it imports.
(c) If the capital account (CP) in the BoP is in surplus, it means that the country exports more capital than it imports.
(d) How the BoP equilibrium is achieved depends on the exchange rate regime.

I have a question about the phrase "returns to scale." I understand what increasing or decreasing returns to scale mean in terms of a production function and in terms of isoquants. I am just having trouble breaking down the senses of the actual words in the phrase. It doesn't mean "a scale that is being returned (coming back) to," right? Does it mean something like "returns" as in marginal outputs, when all inputs are increased proportionally? Then what does scale mean here?

What is the difference between long run classical model and short run?

Imagine the following open economy: C = 50 + 0.75YD , I = 50 - 0.5i, t = 0.1, G = 100, Im = 0.1Y, Ex = 100. Calculate the slope of the IS curve.

If the demand for a life saving drug were perfectly inelastic and the price doubled the quantity demanded would?

government-imposed price supports are most often associated with