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Discuss the effect of expansionary monetary policy

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Question 1: Discuss the effect of expansionary monetary policy on the current account balance. Will expansionary fiscal policy have the same effect? Why or why not? Frame your answer in terms of the DD and AA curves.

Question 2: Explain how the AA schedule is derived.

Question 3: Assume that the economy is at a point on the DD-AA schedule that is above both the AA and DD curves, and hence and where both the output and asset markets are out of equilibrium. Explain what will happen subsequently?

Question 4: Concerned about the ever-rising national debt, the Obama administration decides to increase taxes (hey.....he's not up for re-election, right?). There is an election in twelve short months, so the change is expected to be only temporary. All other factors being equal, explain what will happen to equilibrium GDP and the equilibrium exchange rate in the short run using the DD-AA framework.

Reference no: EM132456496

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