3. Consumer spending on durables falls, draw a graph to analyze the effects of this change in real interset.
4. The Canadian demand for Mexican Pesos is downward sloping and supply of pesos is upward sloping. Assume a system of flexible exchange rate between Mexico and Canada, graphically illustrate and explain how each of the following would affect market value of Mexican Pesos.
a) Mexico encounters severe recession
b) the Mexico government encourages foreign investment in Mexico by tax policies.
5. What effects would each of the following have on equilibrium output and price?
a) an increase of the aggregate supply and a decrease in aggregate demand.
b) an equal increase in both aggregate supply and aggregate demand
If you have the answer, please post it, I would like to know the answer to these questions as well
3. To analyze the effects of consumer spending on durables falling on real interest rates, we need to understand the relationship between consumer spending and interest rates. In general, when consumer spending on durables falls, it indicates a decrease in overall consumption expenditure in the economy. This decrease in consumption expenditure may lead to a decrease in the demand for loans and borrowing, resulting in a decrease in the demand for credit.
Graphically, the relationship between consumer spending on durables and real interest rates can be represented by a downward-sloping aggregate demand curve for credit. The aggregate demand curve represents the relationship between the quantity of credit demanded and the real interest rate.
To analyze the effects on real interest rates, we need to consider the other factors that influence the demand and supply of credit. These factors include investment spending, government spending, and net exports. Changes in any of these factors can shift the aggregate demand curve for credit and affect real interest rates.
4. To graphically illustrate and explain how the following factors affect the market value of Mexican Pesos in a system of flexible exchange rates between Mexico and Canada:
a) Mexico encounters severe recession: A severe recession in Mexico can lead to a decrease in the demand for Mexican pesos. This can be represented by a leftward shift of the demand curve for Mexican pesos. The decrease in demand will result in a decrease in the market value of Mexican pesos relative to the Canadian dollar.
b) The Mexico government encourages foreign investment in Mexico by tax policies: When the Mexican government encourages foreign investment in Mexico through favorable tax policies, it can attract more foreign capital into the country. This increase in foreign capital inflows will lead to an increase in the demand for Mexican pesos. This can be represented by a rightward shift of the demand curve for Mexican pesos. The increase in demand will result in an increase in the market value of Mexican pesos relative to the Canadian dollar.
It is important to note that in a system of flexible exchange rates, the market determines the exchange rate based on the demand and supply of currencies.
5. To determine the effects on equilibrium output and price for each of the following scenarios:
a) An increase in aggregate supply and a decrease in aggregate demand: An increase in aggregate supply represents a shift of the aggregate supply curve to the right, indicating that firms are producing more goods and services. A decrease in aggregate demand represents a leftward shift of the aggregate demand curve, indicating a decrease in the overall demand for goods and services.
The combined effect of an increase in aggregate supply and a decrease in aggregate demand will lead to a decrease in equilibrium output and a decrease in equilibrium price. The decrease in demand leads to a decrease in the quantity of goods and services produced, resulting in a lower equilibrium output. Additionally, with a decrease in demand, firms may reduce their prices to stimulate demand, leading to a decrease in equilibrium price.
b) An equal increase in both aggregate supply and aggregate demand: An equal increase in both aggregate supply and aggregate demand represents a simultaneous shift of both curves to the right. This indicates an increase in both the production capacity of firms and the overall demand for goods and services.
The combined effect of an equal increase in aggregate supply and aggregate demand will lead to an increase in equilibrium output and an uncertain effect on equilibrium price. The increase in both supply and demand increases the quantity of goods and services produced, resulting in a higher equilibrium output. The effect on equilibrium price is uncertain as it depends on the magnitude of the shifts in supply and demand. If the increase in demand is greater than the increase in supply, it may result in an increase in equilibrium price. Conversely, if the increase in supply is greater than the increase in demand, it may result in a decrease in equilibrium price.