Task 1 and Task 2one is essay and one is repport choose The - 1

Task 1 and Task 2one is and one is repport choose The Philippines currency - Essay Example This causes the domestic currency to appreciate. In addition, under this regime, an increase in international real interest rates increases domestic output, decreases exchange rates and domestic price level on condition that money demand is more elastic to changes in the real income than the real interest rates. An increase in domestic money supply causes a proportional increase in the price levels. In this model, the income of a consumer is assumed to be exogenous. The consumer is also assumed to be living in both the present and future periods. The consumer can also borrow and lend regardless of the prevailing world interests rates. The model also assumes that there is no investment made and the current and future government expenditure (G and G’ respectively) is exogenous. A Current Account Surplus implies that a particular country saves more than it invests. It is reflected by an excess of domestic savings over domestic investments and an increase in a country’s net foreign assets evidenced by positive sales abroad. The model suggests a positive relationship between the current account surplus and the current income. As the current income increases, the current account surplus also rises due to an increase in current consumption and government expenditure. The current account surplus experiences an inverse relationship with anticipated future income. As the fu ture income is expected to rise, the current account surplus is expected to reduce as a result of reduction in savings. When the current account surplus is zero, the country’s savings equals the investments. Capital controls refer to prohibitions enforced by the government or Central Bank of a country to restrict the flow of foreign capital in the domestic economy. Capital controls could be exchange controls, taxes, legislation, volume restrictions and reduction in foreign remittances which reduce foreign trade. Capital