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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. What are the predictions of the PPP theory with regard to the real exchange rates? Answer: The real exchange rate among two countries is a broad summary measure of
Calculate the doublefactoral terms of trade (TD), formulated by Jacob Viner based on following information: Suppose in the base year of 2015, Px= 100, Pm= 100, Zx= 100, Zm= 100and
Q. Discuss the main factors affecting the position of the AA schedule. Answer: Revolutionize in the domestic money supply changes in the domestic price level changes in
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Argus Savings and Loan Association began in 1956 in Hometown. As is typical of savings and loan associations, Argus accepts the savings of individuals and organisations and uses th
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