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Author Question: In an economy operating under flexible exchange rates, explain why the IS curve is downward sloping. ... (Read 65 times)

bb

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on: Jun 30, 2018
In an economy operating under flexible exchange rates, explain why the IS curve is downward sloping.
 
  What will be an ideal response?

Question 2

Which of the following countries had the highest level of output per capita in 1950?
 
  A) United States
  B) France
  C) Japan
  D) United Kingdom


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dajones82

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A reduction in i (assume zero inflation) will cause investment to increase for reasons discussed before. This causes an increase in Z and Y. There is a second effect now embedded in the IS curve. As i falls, the demand for the domestic currency drops causing a depreciation. This depreciation causes NX to rise and demand to rise even more. So, there are two components of demand that now change as i changes: I and NX.

Answer to Question 2

A


bb

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Reply 2 on: Jun 30, 2018
YES! Correct, THANKS for helping me on my review

aliotak

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Reply 3 on: Yesterday
Excellent

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