Reference no: EM131298507
Consider two economies, A and B. Recently, a referendum was held in country B and B's voters voted to leave a political and economic bloc with other countries. The result of the referendum in B shocked the world and had sparked vast uncertainty to the financial market. According to the DD-AA model, country A would experience a deterioration of its current account." True/False/Uncertain, explain with the aid of ONE DD-AA diagram.
Note:
Think about how you would incorporate uncertainty in the financial market.
Assume the shock is a permanent one.
Compare your answer to the initial long-run equilibrium.
Country A is NOT a member of the political and economic bloc that B belonged.
Quote the exchange rate as # of A$ per B$, i.e., EA$/B$.
Use the subscripts A and B to denote all terms and variables used for countries A and B respectively. You must follow the above instructions; otherwise, you will receive a grade of ZERO for the whole question.