In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending ______
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.
Why weren’t the photo albums destroyed?
Who indicates the places for oil drillers?
CONSENSUS
Fester
Which of the following words seems the most opposite in meaning to the word 'mend' s used in the passage?
Choose the word/group of words which is most similar in meaning to the word/ group of word augmentation as used in passage
Choose the word/group of words which is opposite in meaning to the word/ group of words printed in bold as used in passage
FRAGILE
...Why is there a need of strong regulation in the Indian health insurance and hospital sectors?
How, according to India should the emissions be calculated?
(i) It is accurate to calculate per capita emission.
(i) moderation should be ...
Directions: Four statements are given below labelled 1), 2), 3), 4) and 5). Among these, four statements are in logical order and form a coherent parag...