because the IS is not equal to savings and investment rather it has the same function as the Keneysian cross Y=C(Y-T);I(i);G;TB(EP*/P;Y-T;Y*-T*) and it represent the goods market. Look how the axes are labelled.
sorry, I was going through the summary and I noticed this graph's explanation is wrong. This is the correct one:
non-center is facing a recession --> center country will help by making them increasing their output,: center applies an expansionary monetary policy --> LM curve shits up and lowering the interest rate --> IS has to adapt by shifting up because of the pegged i .
Home than follows the same trend: decrease in i --> increase in Y . Thus, the center country gets further from the target output (Y0) but helping the home country to get closer to the target output and reducing the recession.
if one currency appreciates by a certain amount, the other one has to depreciate by the exact same amount I think, otherwise it wouldn't make sense. Furthermore, the euro depreciates by 0.117 dollars, so if you apply the formula, you would get the amount by which the euro depreciated in euro.
The question mentions that Indonesia decides to maintain capital mobility and fixed exchange rate, so no monetary policy, but then the answer says Indonesia defends the peg by monetary intervention? how is this possible
real wage foreign is just the MPL cars since they are only producing cars: 2.5. For the home country they only produce motos so the wage is the mpl of motos but since we need it in terms of cars we multiply that (5) by the world relative price of motos (0.5) and we get 2.5 also in this case.
1 year ago
How do you find the world relative price of motos ?