Question
Under a fixed exchange rate system with perfect capital
mobility, what happens when the government increases its spending?Solution
In a fixed exchange rate system with perfect capital mobility, an increase in government spending shifts the IS curve to the right, increasing output and the interest rate. However, because capital is perfectly mobile, the higher domestic interest rate would attract foreign capital, leading to upward pressure on the exchange rate (appreciation). To maintain the fixed exchange rate, the central bank intervenes by increasing the money supply, which shifts the LM curve to the right, lowering the interest rate back to the world interest rate.
In each of the following questions, a word has been given and used in three statements. You are supposed to identify which of the statement/s use/s the...
In each of the questions below four words are highlighted in the sentences. One of these four words printed in bold may be either wrongly spelt or inap...
Evince
Select the option that can be used as a one-word substitute for the given group of words.
A group of three novels or plays, each complete in itself
In the question given below, a few sentences are provided which are grammatically correct and meaningful. Connect the pair of sentences using the highl...
In each of the questions given below, four words are given in bold. These four words may or may not be in their correct position. The sentence is then ...
In the following question, a word has been given and there are three ways in which the word has been used, in similar or different forms. You need to se...
Directions: In each question below, word is used in four different ways. Choose the option in which the usage of the word is INCORRECT or INAPPROPRIATE....
In the given question, a word has been given and there are three ways in which the word has been used, in similar or different forms. You need to see w...
- Below a word is given in three sentences. Find out which one/ones make/makes a correct usage of the given word and mark the option accordingly. If the sent...
