MAE 302 The Short Run Stickiness Model of Exchange Rate Question

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MAE 302
T1, 2022
Macroeconomics of Open Economies
Assignment-1
DUE DATE AND TIME:
PERCENTAGE OF FINAL GRADE:
14th April 2022, 8PM
20%
Learning Outcome Details
Unit Learning Outcome (ULO)
Graduate Learning Outcome
(GLO)
ULO 1: apply macro-economic theory to analyse
contemporary economic issues;
ULO 3: understand the foreign exchange market
GLO1: Discipline-specific
knowledge and capabilities
GLO 5: Problem solving
Assessment Feedback:
Students who submit their work by the due date will receive their marks and feedback on
CloudDeakin on 2nd May 2022, 11:59PM.
Description / Requirements
Answer all three questions.
In all answers, use figures if necessary. No referencing required if only the prescribed textbook is
consulted. For other sources, use references.
Submission Instructions
You must submit an electronic copy to DeakinCloud.
Any work you submit may be checked by electronic or other means for the purposes of detecting
collusion and/or plagiarism.
Deakin’s Bachelor of Commerce and MBA are internationally EPAS accredited.
Deakin Business School is accredited by AACSB.
Questions:
1. In the exchange rate model with short-run price stickiness, the nominal interest rate decreases
immediately if there is a permanent increase in money supply. However, the model of monetary
approach to the exchange rate suggests that the interest rate rises when there is a permanent
increase in the growth rate of money supply. Explain how the different assumptions in these two
models lead to contrasting predictions about the response of interest rates to the money supply.
Show the relevant long-run time paths of the interest rate, price level and nominal exchange rate in
each model. (8 mark)
2. Analyze the effects of a temporary increase in the European money supply on the dollar/euro
exchange rate using both the Australian money market and the foreign exchange market. Explain.
(4 marks)
3. Discuss the short run and the long run effect of a permanent exogenous decrease in foreign
money demand on the domestic money market and the foreign exchange market. (8 marks)
Notes
•
All assignments are to be submitted online in the area provided in DSO. They are counted as
‘on time’ if submitted by 11:59pm AEST or AEDST on the due date. If necessary, you can look
up your local time at
http://www.whitepages.com.au/wp/helpfulInfo.do?category=info&item=worldTime.
When submitting online, you must check that you have submitted work correctly by following
the instructions provided in DSO.
The following marking penalties will apply if you submit an assessment task after the due date without an approved extension: 5%
will be deducted from available marks for each day up to five days, and work that is submitted more than five days after the due
date will not be marked.
The late penalty is therefore calculated as follows:
1 day late. Submitted after [Time, date but before Time, Date]. Penalty 5/100 (0.01 to 23.59 hours after due time and date,
shown in hours on Cloud Deakin Drop Box)
2 days late. Submitted [Time, date but before Time, Date]. Penalty 10/100 (24-47.59 hours after due time and date, shown as 1
day on Cloud Deakin Drop Box)
3 days late. Submitted after [Time, date but before Time, Date]. Penalty 15/100 (48-71.59 hours after due time and date, shown
as 2 days on Cloud Deakin Drop Box)
4 days late. Submitted after [Time, date but before Time, Date]. Penalty 20/100 (shown as 3 days on Cloud Deakin Drop Box)
5 days late. Submitted after [Time, date but before Time, Date]. Penalty 25/100. (shown as 4 days on cloud Deakin Drop Box)
Page 2 of 3
•
•
For more information about academic misconduct, special consideration, extensions, and
assessment feedback, please refer to the document Your rights and responsibilities as a
student in this Unit in the first folder next to the Unit Guide of the Resources area in the
CloudDeakin unit site.
Building evidence of your experiences, skills and knowledge (Portfolio) – Building a portfolio
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Once you have completed this assessment piece, add it to your personal Portfolio to use and
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Page 3 of 3

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Explanation & Answer:
1000 words

Tags:
economics

exchange rate

money supply

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