## Solution Library

#### Changes in currency supply and demand

Question: Changes in currency supply and demand can be traced back to changes in fundamental supply and demand in foreign and domestic i._____markets and foreign and domestic ii.________ markets as well as to changes in currency speculators’ expectations vis-à-vis future relati ... Read More

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#### Determining the real exchange rate

Question: To determine the real exchange rate, what two pieces of information do you need in addition to the nominal exchange rate? ... Read More

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#### Trade deficit directly tied to the Net Foreign Investment

Question: We know that National Savings is what’s left of National Income after Households Consume and the Government Spends (S = Y – C – G). And, we know that National Income equals GDP (Y = C + I + G + NX).  Therefore, it is easy to show that a country’s ... Read More

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#### Theory of Purchasing Power Parity

Question: The Theory of Purchasing Power Parity says that, in the long run, nominal exchange rates change to offset changes in relative i. _____so that the purchasing power of two currencies stays roughly at parity. ii. Briefly Explain? ... Read More

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#### Currency Valuation based on Purchasing Power Parity

Question:   In June 2005, a Big Mac sold for 6,000 pesos in Colombia and \$3.00 in the United States.  The exchange rate in June 2005 was 2,300 pesos per US Dollar.  So, on Big Mac purchasing power parity grounds the Colombian peso was i. _________.ii. Briefly Explain? ... Read More

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#### Currency Pegging

Question: If a government pegs the value of its currency to another currency, the government must stand ready to i. _________________________ the “hard” currency to defend the pegged value of its own currency. ii. Briefly Explain? ... Read More

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#### Maintain a peg that undervalues a currency

Question: In the short-run, it is easier for a country to maintain a peg that undervalues a currency (relative to the equilibrium market rate) than it is to maintain a peg that overvalues the currency (relative to the equilibrium market rate). Explain Why?  ... Read More

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#### Stimulus package passed by the US Government in 2009

Question: 1. Was the stimulus package passed in 2009 as success?  In answering this question the focus should be the articles on the syllabus, but you should also include opinions of other commentators.   Your answer should also describe why coming to a clear conclusion on thi ... Read More

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#### Long-term Federal government budget problems and misleading forecast by CBO

Question: Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading. Include in your answer why solutions to the problem will necessarily involve a decision about which citizens will bear the burden of trying to balance t ... Read More

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#### Economic crisis situation in Europe

Question: Describe the present economic crisis situation in Europe.Why has it been so difficult for the Europeans to find a solution to this problem? Comment on what implications the crisis may have for the rest of the world if Europeans are not able to agree on a solution. Summary: T ... Read More

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#### Hubbardâ€™s argument about the Federal Reserve controlling Federal funds rates

Question: Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?   Summary:The question whether the Federal Rese ... Read More

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#### Hubbardâ€™s adaptive expectations and rational expectations

Question: Compare and contrast ‘adaptive expectations’ (Hubbard uses adaptive expectations) and ‘rational expectations’ in modeling expectations.   Summary: Hubbard’s ‘adaptive expectations’ in modeling expectations are discussed in ... Read More

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