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A central bank that adopts a fixed exchange rate system may sacrifice its monetary autonomy in setting its domestic monetary policy. It is sometimes argued that when this is the case, the central bank also gives up the ability to use monetary policy to combat the wage price spiral. The argument goes like this: Suppose the workers demand higher wages and employers give in, but that the employers then raise output prices to cover their higher costs. Now the price level is higher and the real balances are momentarily lower, so to prevent an interest rate rise that would appreciate the currency, the central bank must buy foreign exchange and expand the money supply. This action accommodates the initial wage demands with money growth and the economy moves permanently to a higher level of wages and prices. With a fixed exchange rate there is thus no way on keeping wages and prices down". What is wrong with this argument?
Elucidate the effect this policy would have on the nation's real risk-free interest rate, nominal interest rates, real and nominal GDP.
Assume the average value of P is $ 3 and the average value of Po is $ 6. Illustrate what is the price elasticity at the average values of P and Po.
Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry.
Explain what happen if all workers and jobs were identical, there would be just one wage rate, assuming perfect information and costless mobility.
One container requires 2 days in fabrication time. Setup times are negligible. If policy variable for unforeseen circumstances is 10 %, how many containers should management authorize for lens replenishment system.
Illustrate what effect does the income tax have on consumption and labor supply? Explain your results in terms of income and substitution effects thoroughly.
Illustrate what is the present value assuming a discount rate. Level of consumption or saving will be illustrate what.
If you were a manager at PepsiCo, would you try to convince your colleagues while introducing the new soft drink is the most profitable strategy.
In competitive equilibrium, what is the ratio of the price of bananas to the price of tomatoes. Illustrate what is the equilibrium quantity of bananas and tomatoes consumed by Marilyn and Chen.
The Environment Ministry in Japan proposed new carbon tax in order to meet Japan obligations to decrease carbon dioxide emissions under Kyoto Treaty.
Explain how are the gains from trade shared among the parties to a trade. Is it possible for specialization and trade to increase total output of traded goods.
Discuss and explain similarities and differences in the roles economists play as policy makers and as scientists.
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