Stabilization policies in the aa-dd model, Financial Management

Assignment Help:

Stabilization Policies in the AA-DD Model.


Suppose the economy of Zion has reached the long run equilibrium (i.e. full employment). Now assume that a best-seller, written by Neo and Trinity, entitled Buy Domestic Products convinces the public to consume less imported goods.

a Show how the fall in the demand for imports a ects the output of Zion in the short run.

Hint: use the Keynesian Cross model.

b Using the AA-DD model explain how the fall in the demand for imports a ects the AA and the DD schedules, the nominal exchange rate and output (recall that we are assuming that the economy was at its full employment level before this shock). Support your answer with a
graph.

c Describe how scal policy (taxes o government expenditure) can be used to restore full employment? What are the implications for the nominal exchange rate? (do not forget to include graphs to support your answer).


Related Discussions:- Stabilization policies in the aa-dd model

Equity instruments, QUASI-INSTRUMENTS These instruments are considered ...

QUASI-INSTRUMENTS These instruments are considered as debt instruments for a time-frame and are converted into equity at the option of the investor (or at company's option) aft

Evaluate alternative hedging strategies, Peak Inc. needs to order Canadian ...

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

Analytical way of viewing financial problems of a firm, Analytical way of v...

Analytical way of viewing financial problems of a firm The new approach is an analytical way of viewing financial problems of a firm. The main contents of this tactic are what

Volume of issues of central and state government securities, Volume of Issu...

Volume of Issues of Central and State Government Securities The growth of government securities market in India and the investor response to the government bond issues can be k

Capital structure decisions: the basics, i want some presentation slides of...

i want some presentation slides of this chapter from page 570 to 580

Expalin investment intermediaries, Investment intermediaries An investm...

Investment intermediaries An investment intermediary includes finance companies, mutual funds, investment banks and securities firms.

par value, The face value of the debt security can be thought of as ...

The face value of the debt security can be thought of as the principal amount on which interest is paid by the issuer. It is the amount the issuer is willing to r

What is a fair price for a share, Sega Inc. expects earnings/dividends to g...

Sega Inc. expects earnings/dividends to grow at an annual rate of 30 percent for the next 4 years. After that they feel that the market will get saturated and the growth rate will

Highest earnings-per-share, McGovern Company is comparing two disimilar cap...

McGovern Company is comparing two disimilar capital structures - an all-equity plan (Plan I) and a levered plan (Plan II).  Under Plan I, the Company would have 700,000 shares of s

What is usual approach of capital structure, Q. What is usual Approach of c...

Q. What is usual Approach of capital Structure? Ans. Traditional Approach: - The traditional approach establishes middle among the Net Income approach and the Net Operating Inc

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd