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Capital Market and Real Estate Assignment

   

Added on  2020-04-15

9 Pages1704 Words36 Views
Running Head: CAPITAL MARKET AND REAL ESTATECapital Market and Real EstateName of the StudentName of the UniversityAuthor note

CAPITAL MARKET AND REAL ESTATE 1Table of ContentsAnswer 1..........................................................................................................................................2Answer 2..........................................................................................................................................3Answer 3..........................................................................................................................................3Answer 5..........................................................................................................................................4References........................................................................................................................................8

CAPITAL MARKET AND REAL ESTATE 2Answer 1The given statement is false. If government want to increase demand by $5 billion then ithas to carry out government spending greater than $5 billion. The effect on aggregate demandbecause of fiscal policy expansion depends on the multiplier effect derived from the IS curve(Palley, 2015). For a closed economy the effect of change in government expenditure onaggregate demand depends on the multiplier given as dYdG=11−C',WhereC'isthemarginalpropensity¿consumeThe expansionary fiscal policy leads to an increase in interest rate, which affect investment anddampen the expansionary effect. This is called crowding out effect.In the closed economy the multiplier is given as dYdG=11−C'−M',MdenotestheimportIn the open economy the additional leakage exits induced by imports. The open economy with afixed exchange rate regime has a smaller crowding out effect than the closed economy. Once theeconomy move from fixed to flexible exchange rate regime the situation is reversed. Withflexible exchange rate, the interest rate alters the net export and creates crowding out both indomestic and international market.

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