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Set B Q4b
Discuss the likely effects on sg's NY and its components…
Set B Q4b
Discuss the likely effects on sg's NY and its components when its exchange rate appreciates. [15]
KW:
- discuss: just list the different outcomes, dont have 2 POV
- sg context
- exchange rate appreciating --> trigger event
- change in NY question: bring in AD and AS
body
impact on X-M
impact on AD
- standard erp explanation
- you will end up with having X-M to increase
- just take note that since we are using sg context, so its GIVEN THAT MLC HOLDS and not assuming
- AD decrease, multiple decrease in NY
EV:
- MLC might not hold in the SR
- for producers whose exports have high import content
- appreciating SGD
- COP falls
- since sg pdt have a lot of imported content
- this might lower the px of X or the px does not increase that much
- X-M might not fall that much
impact on SRAS
- cheaper imported g+s
- SRAS increase
- fall in COP
- NY increase
Impact on I
increase in I
- positive outlook
- expected irr increase
- better investment conditions
- appreciation
- decrease net exports
- decrease dd pull inflation
- decrease COP
- price stability
- less uncertainty and better able to predict COP
- increase I
fall in I
- investors have to spend more to purchase the necessary resources for investment
impact on C
- households will swtich from domestic to imported
- decrease C
- but the extent of increase or decrease of C depends on whether the increase in X or decrease in domestic price of goods is larger
impact on G
unlikely to have any impact
- level and type of G is decided previously already
Overall impact
- fall in X-M
- fall in C
- effect on I is indeterminate
- no impact on G
- SRAS increases
draw diagramconsider whether the economy is near the full employment level or not
- the economy is likely near full employment
- becasue that is where the MAS will apply gradually appreciating stance
- consider the cases where AD increases or decreases coupled with increase in NY
- the effect depends on which shift dominates
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