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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. Present the case against floating exchange rates. Answer: 1.The discipline obligatory on individual countries by a fixed rate would be lost. 2. Undermine specu
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Q . Now the monopolist discovers that it will export as much as it likes of its steel at the world price of $5/ton. It will thus expand for- export production up to the point whe
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