Posted by
**Kacey** on
.

What is the short-run effect on the exchange rate of an increase in domestic real GNP, given expectations about future exchange rates?

Imagine that the central bank of an economy with unemployment doubles its money supply. In the long run, full employment is restored and output returns to its full employment level. On the (admittedly unlikely) assumption that the interest rate before money supply increase equals the long-run interest rate, is the long-run increase in the price level more than proportional or less than proportional to the money supply change? What if (as is more likely) the interest rate was initially below its long-run level?

Take a shot. What do you think would happen to exchange rates.

Start with drawing your IS-LM curves applied to open international markets.

I've only been in this class for 4 weeks, so we're not that far along yet. I've run into a couple of problems on my homework that I just don't understand:

1. Suppose the price elasticity of demand is 3, and the price elasticity of supply is 1. What happens to the price if the demand goes down by 12%?

2. Suppose the price elasticity of demand is 3, and the price elasticity of supply is 1. If the government levies a sales tax, what percentage of taxes (%) does the consumer pay?

3. Suppose the price elasticity of demand is 3, and the price elasticity of supply is 1. If the government levies a sales tax, what percentage of taxes (%) does the producer pay?

Thank you in advance!