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Final

ECON 4423 Study Guide - Final Guide: Electronvolt, Liquidity Trap, Money SupplyExam


Department
Economics
Course Code
ECON 4423
Professor
Keith E Maskus
Study Guide
Final

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Economics 4423, Fall 2018
Assignment 3
Your
name
___________
_
Due
at
the
beginning
of
class, Thursday, December
13
I.
(IO points)
(Some
example definitions). Briefly define
and
explain the importance for
international finance
of
the following concepts.
A. Liquidity
trap
(or
zero lower bound)
8 . Sterilization bonds
-
(')
-?;P -• -
it-
( -. )
Questions
on
material in
Chapter
8 Y
,.
C..
(
'<
-
i)
I
"'
"
~
-t
TB
~
- ,
'1-T
, '( -T
II.
(21
points)
Consider
Dc~ark
,
which
has its
own
currency (the Kroner),
but
the
Kroner
is
rigidly fixed to the Euro.
Think
of
Denmark as the home country
and
the Eurozone as the f
anchor
country.
Use
the
IS-LM-FX
model
to
analyze
how
each
of
the following scenarios
sepa
rately affects the economy
of
Denmark
.
(That
is, analyze the impacts
(if
any)
on
Y, i, E,
I,
TB
,
and
C,
and
how
the Danish
money
supply must change
to
fix the
exchange
rate E.
a.
The
Eurozone reduces its
money
supply.
Pev,l'llo'~
~\-\~
fv.r02ol')(,,
I
fa,
I.H
.
"'
;..
'
"'
r=-
h
:r""I'"~
't
I h I I
~
l')O
(..
""1tc.-
I~
CJ, TS ( ·
no
'""'"jv
~-"'
f:
2 ·
t.f
.. ,.
'<
b.
Denmark
cuts its government
spending
to reduce its budget deficit.
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