Effect of a permanent increase in the money supply, International Economics

Assignment Help:

Q. Explain the following figure:

Answer: The figure depict the effect of a permanent increase in the money supply starting from full employment equilibrium. Subsequent to the initial increase in the money supply and the move of the AA curve to the right from AA1 to AA2 a steadily increasing price level shifts the AA and the DD schedules to the left until a new long-run equilibrium is reached.   Note that point 3 is above point 1 for the reason that Ee is permanently higher after a permanent raise in the money supply.  The expected exchange rate, Ee has increase by the same percentage as Ms. Notice that beside the adjustment path among the initial short-run equilibrium (point 2) and the long-run equilibrium (point 3) the domestic currency actually appreciates (from E2 to E3) following its initial sharp depreciation (from E1 to E2).

372_Explain the following figure.png


Related Discussions:- Effect of a permanent increase in the money supply

Explain the credibility theory of the ems, Q. Explain the credibili...

Q. Explain the credibility theory of the EMS. Answer: In this approach the other EMS countries in effect imported the credibility of the German central bank in fightin

International monetary system influence macroeconomic policy, Q. How did th...

Q. How did the international monetary system influence macroeconomic policy-making and performance during the interwar period (1918 - 1939)? Answer: Governments efficiently sus

Why under fixed exchange rate is ineffective, Q. Explain why under fixed ex...

Q. Explain why under fixed exchange rate, monetary policy is ineffective whereas under floating exchange rate it is effective in rising output. Answer:  In floating by purchasi

Trade, trade experience of developing countries

trade experience of developing countries

One of the problems in the opportunity cost approach and int, essay should ...

essay should be based on one of the problems mentioned into Haberler (1950) with references to the main assumptions of the general equilibrium analysis

Neoclassical and classical trade theory, Q. Neoclassical and Classical tra...

Q. Neoclassical and Classical trade theory makes the case that free trade can bring a country to an optimum and economically efficient use of its resources; and therefore is an op

#title.Economic indicators, I want to make a report on Econmomic indicators...

I want to make a report on Econmomic indicators in financial market

Explain why east asian countries have done so well, Q. Explain why East Asi...

Q. Explain why East Asian countries have done so well relative to South American countries. Answer: Generally the reasons are less moral hazard less government debt to forei

How dd-aa schedule affect in the short run, Q. Explain how an increase in g...

Q. Explain how an increase in government spending would affect the DD-AA schedule in the short run. Answer: A raise in government spending will raise aggregate demand, which wi

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