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Q. Use a figure to study the following question: Consider that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the asset and output markets are out of equilibrium. Explain what will happen next.
Answer: Because the asset market adjusts extremely quickly the exchange rate drops immediately to a point on the AA schedule. There will be surplus demand for the domestic currency for the reason that the high expected future appreciation rate of the domestic currency implies that the expected domestic currency return on foreign deposits is below that on domestic deposits. This surplus demand leads to an immediate fall in the exchange rate.
Q. Discuss the relationship between PPP and the Law of One Price. Answer: The law of one price is applies to individual commodities while Purchasing Power Parity appli
1 Answer True or False. Brief explain your answer. No credit without explanation. a Bretton Woods. During the Bretton Woods system countries with large current account surpluses
Q. Use the fixed exchange rate DD - AA model to describe the economy's short-run equilibrium. Then, use the same figure to study an expansionary monetary policy. Show that the pol
Q. How were the initial members of EMU chosen? How will new members be admitted? What is the structure of the complex of financial and political institutions that govern economic
Explain about International economic integration. EU
Q. "Under floating rates, the economy is more vulnerable to shocks coming from the domestic money market." Discuss. Answer: It is true statement, under floating rates an incr
Using examples, from the government, illustrate the significant opportunity cost.
Development through stabilisation and reform can be understood as follows The reasoning here was that the trade and resource transfer could not, by themselves, lift L
Q. Why would you suggest to a government to use a floating exchange-rate regime? Answer: Floating Exchange Rate is an exchange rate in which central banks don't inter
The Source of Comparative Advantage can be understood as follows: The source of comparative advantage could be productivity differential (Ricardo) or differences in the factor
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