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Q. Explain how Brazil was able to reduce the rate of inflation from 2,669 percent in 1994 to less than 10 percent in 1997?
Answer: By initiating a new currency and initially pegging it to the dollar. At the cost of extensive bank failures high interest rates in 1995 and the shift to a fixed upwardly crawling peg and a substantial real appreciation of the local currency.
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.
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
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Q. What is the theory of Second Best? Answer: The principal of the second best notify us that when an economy suffers from multiple distortions the removal of only a few
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