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Demand for Capital

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We examine the second scenario:
Decreased shift in demand for capital occurs, or downward shift in demand for capital occurs during an economic downturn. Downward shift in demand for capital means that at the same interest rates less capital is demanded. Also, it means that the same capital is demanded at lower interest rates. The economic growth rate declines or the growth rate may even turn negative. This means the growth rate of GDP declines. The demand for ...

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The answer to this problem explains decreased shift in demand for capital. The second scenario is explained in this response. The references related to the answer are also included.

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Several Problems

1. A. briefly discuss the economic reforms that have been taking place in latin America since the late 1980's

B. according to the Economic freedom of the world report which of these counties appear to have been successful in recent years?

2. How is the U.S. economy affected by:

A. a recession in Mexico (monetary policy and fiscal policy)
B. simulative monetary policies (monetary policy and fiscal policy)

3How and why do monetary and fiscal policy affect the exchange rate?

4.in the early 1980's the united states pursued a policy of fiscal expansion and monetary contraction

a. What do you suppose was the effect of that policy mix on US interest rates?
b. How did this affect the dollar exchange rate?
c. .What happened to the U.S. competitive position at home and aboard? What do you suppose happened to the US trade balance?
d. Trace the effects of reversal in the US policy mix that occurred between 1985 and 1988

Multiple choice
5. The demand for dollars in foreign exchange market::
a. is represented by a point in a diagram of foreign exhcnage supply and demand.
b. Depends in part on foreign demand for us goods
c. Depends on us demand for foreign goods and services
d. Is the ration of the dollars demanded to the amount of foreign currency supplied

2. When American buy Mercedes Benz automobiles made in Germany they are generating at:
a. supply of us dollars and a supply of a foreign currency
b. supply of us dollars and a demand for a foreign currency
c. demand for us dollars and a supply of a foreign currency
d. demand for US dollars and a demand for a foreign currency
3. If the exchange rate between the US dollar and the Japanese yen changes for $1=100 yen to $1=90 yen, then:
a. all Japanese producers and consumers will lose
b. US auto producers and autoworkers will loose
c. Us consumers of Japanese TV sets will benefit
d. Japanese tourist to the US will benefit
4. An increase in the US trade deficit could be caused by:
a. and appreciation of the dollar in terms of other currencies
b. an increase in the rate of inflation in the us
c. the imposition of a tariff on imported goods
d. a depreciation of the dollar in terms of other currencies

5. Suppose that today 1 British pound exchanges for $1.60. if next week 1 pound exchanges for $1.70 it is clear that:
a. the pound had depreciated relative to the dollar
b. the dollar as appreciated relative to the pound
c. both currencies have appreciated
d. the dollar had depreciated relative to the pound
6. Which of the following could be responsible for the depreciation of a country currency?
a. the country defaults on bonds held by foreigners
b. speculators anticipate a military attach from a neighboring country
c. the country experiences a sudden spurt in the rate of inflation while other nations do not
d. all of the above
7. One article title "money crisis pulling Asian students home" when Asian currencies depreciates against the US dollar for Asian students?
a. and education in the US becomes more expensive
b. and education in the US becomes cheaper
c. the cost of an education in the US remains the same
d. it now takes less Asian currency units to purchase $1 worth of us goods
8. In one article "Bush to seek protection for US steel firms," discussed the financial problems for the US steel industry because of low cost imported steel. When the value of the US dollar appreciates, imports become:
A. more expensive causing and increase in demand for domestically produced steel
B. more expensive causing and decrease in demand for domestically produced steel
C. less expensive causing a decrease in demand for domestically produced steel
D. less expensive causing an increase in demand for domestically produced st
9. The incompatible Trinity reminds us that a:
a. fixed exchange rate, independent monetary policy and free capital mobility cannot coexist.
b. Floating exchange rate independent monetary policy and free capital mobility cannot coexist
c. Floating exchange rate independent monetary policy and capital controls cannot coexist
d. Fixed exchange rate independent monetary policy and capital controls cannot coexist
10. After the European crisis of 1992, EMU members circumvented the incompatible Trinity problem by:
A. Pursing independent monetary policies
B. Letting their currencies float against each other currencies
C. Giving up independent monetary policy and establishing a central bank
D. Pegging their currencies to the yen

11. One article is titled "money crisis pulling Asian students home" when Asian currencies depreciate against the US dollar for Asian students:
a. and education in the United states becomes more expensive
b. and education in the United States becomes cheaper
c. the cost of an education in the US remains the same
d. it now takes less asian currency units to purchase $1 worth of US goods
12. In one article "Bush to seek protection for US steel firms" discusses the financial problems for the US steel industry because of low cost imported steel. When the value of the US dollar appreciates import become:
a. More expensive causing increase in demand for domestically produced steel
b. More expensive causing an decrease in demand for domestically produced steel
c. Less expensive causing a decrease in demand for domestically produced steel
d. Less expensive causing an increase in demand for domestically produced steel.
13. The Incompatible Trinity reminds us that a:
a. fixed exchange rate, independent monetary policy and free capital mobility cannot coexist
b. floating exchange rate independent monetary policy, and free capital mobility cannot coexist
c. floating exchange rate, independent monetary policy, and capital controls cannot co exist
d. fixed exchange rate, independent monetary policy, and capital controls cannot coexist.
14. After the European crisis of 1992, EMU members circumvented the incompatible trinity by:
a. Pursing independent monetary policies
b. Letting their currencies float against each others currencies
c. Giving up independent monetary policy and establishing a common central bank
d. Pegging their currencies to the yen

Books used in this course international economics a policy approach 10th E Krelnin
International economics and international economic policy
King 4th E

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