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Q. Explain how the AA schedule is derived.
Answer: For a fixed real money supply an enhancement in output leads to an increase in the domestic interest rate. In the foreign exchange market an enhancement in the domestic interest rate leads to a lower nominal exchange rate therefore appreciating the currency. Therefore the relationship among nominal exchange rate and output is negative this leads to a negative slope of the AA schedule which has the ostensible exchange rate and output on its axes.
Q. It can be demonstrated that any protectionist policy, which effectively shifts real resources to import competing sector or industry, will harm export industries or sectors. T
conditions for trade unions to claim for higher wages
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
Q. Explain why under the gold standard a perpetual surplus or a perpetual deficit is impossible. Answer: Since specie inflows drive up domestic prices and restore symmetry in
1. Explain why many Asian countries set up Export Processing Zones and why China set up Special Economic Zones. What are the similarities and differences between EPZs and SEZs?
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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
Q. What do you expect would be the effects of 9/11 on the size of the Eurocurrency markets? Answer: Will increase because of fear that foreign deposits in the United States wi
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