Economy under fixed and floating exchange-rate regimes, International Economics

Assignment Help:

Q. Use the DD - AA model to examine and compare the response of an economy under fixed and floating exchange-rate regimes to a temporary fall in foreign demand for its exports.

Answer: The DD curve moves to the left. When the exchange rate floats for the reason that the demand shift is assumed to be temporary it doesn't change the long-run expected exchange rate and thus does not move the asset market equilibrium schedule AA. Therefore, E goes up that is the currency depreciates and output falls.

In a fixed exchange rate policy the central bank should prevent the currency depreciation that occurs under a floating rate therefore it buys domestic money with foreign currency dropping the domestic money supply and shifting the AA to the left and down. E will stay remain constant and output will fall.


Related Discussions:- Economy under fixed and floating exchange-rate regimes

Relative factor abundance, Q. "No country is abundant in everything." Disc...

Q. "No country is abundant in everything." Discuss. Answer: the idea of relative (country) factor abundance is (like factor intensities) a relative concept. When we recogniz

What do you think about international, Q. What do you think about int...

Q. What do you think about international? Answer: A prescribed procedure whereby a country is able to seek international legal authorization to temporarily stop paying i

Foreign trade, What are the two main base of foreign trade ?

What are the two main base of foreign trade ?

Discuss the hechscher-ohlin model, Q. Countries that are willing to toler...

Q. Countries that are willing to tolerate an unusually high quantity of pollution relative to their supplies of other factors would leads to export "pollution-intensive" goods. D

Asignmnent , construct a production possibilities frontier that represents ...

construct a production possibilities frontier that represents japan''s goal of producing both cars and housing. Assume the japanase economy is in a downtyrn and indicate with an Xt

What facts could proponents of an expansion of nafta, Q. It is still the c...

Q. It is still the conventional wisdom in the U.S. that compliance with NAFTA needs is having a deleterious effect on U.S. highway safety standards, on U.S. pollution and other en

Trade theory, what you do understand by the term effective rate of protecti...

what you do understand by the term effective rate of protection

Domestic investment rates, Q. Explain why, according to Feldstein and Horio...

Q. Explain why, according to Feldstein and Horioka, one should expect that domestic investment rates diverge widely from saving rates. Answer: The decisions of corporations t

How did the european single currency evolve, Q. How did the Europea...

Q. How did the European single currency evolve? Answer: The answer is related to the crumple of Bretton Woods and the European Currency reform of 1969-1978. The Werner

Evaluate the credit risk analysis, Question : Banks find it more profit...

Question : Banks find it more profitable to lend money as the margin on lending is much higher than any other banking activity. However, banks have to assess credit risks and t

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd