Macro Economics Essay Example | Topics and Well Written Essays - 500 words

Macro Economics - Essay Exampleb) In an economy with a fixed commuting rate, the government or the central fix interfere through buying and selling of foreign silver to maintain a fixed give-and-take rate. However, a continuing current account deficit whitethorn propel the central bank to devalue the currency. The managed flip-flop rate regime of China is not a floating one. In scandalize of the huge current account surplus of China, the government and the central bank of China have not allowed the exchange rate of Chinese yuan to appreciate in spite of the upward pressure on the currency. 2. The BP or FE curve was first given by Robert Mundell of capital of South Carolina University and Marcus Fleming of the International Monetary fund. This curve explains the effect of monetary policy and pecuniary policy on the exchange rate of an open economy. According to the BP curve analysis, an increase in government spending or fiscal expansion leads to an increase in output, an incre ase in interest rate, an appreciation in the foreign exchange rate and vice-versa. Similarly a monetary contraction leads to a decrease in output, increase in interest rate and appreciation in the exchange rate.