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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. Why do we observe the Leontief paradox? Answer: There are several possible answers that they may be categorized into three groups. One would argue that the theory or model
Q. The Brazilian firm is charging its foreign (U.S.) customers one half the price it is charging its domestic customers. Is this bad or good for the real income or economic welfa
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Q. Why did the EU countries move away from the EMS toward the goal of a single shared currency? Answer: 1. To produce a superior degree of European market integratio
Q. What are the reasons for the world as a whole running a substantial current account deficit? Answer: This deficit improved sharply in the early 1980s and has remained high.
Explain why the exchange rate model based on PPP is a long-run theory. Answer: PPP theory is a financial approach to the exchange rate. It is a long-run theory for the reason
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