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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 e
Q. What are the main factors determining the aggregate money demand? Answer: Three major factors: the price level, interest rate and real national income. A increase i
Q. Consider the economy is initially consuming along the intertemporal budget constraint at point A, where no saving occurs. How does a fall in the real interest rate, r, and affe
how is exchange rate determined?
Q. What factors lie behind capital inflows to the developing world? Answer: Several developing countries have received a lot of capital inflows that lead them to an
Q. Why do governments prefer to avoid excessive current account surpluses? Or, why are growing domestic claims to foreign wealth ever a problem? Answer: On behalf of a given l
how trade lowers the costs of making computer peripherals such as mice and keyboards
Q. Why would you suggest to a government to use a floating exchange-rate regime? Answer: Floating Exchange Rate is an exchange rate in which central banks don't inter
Q. Suppose both governments offer their respective company a $10 million subsidy. Answer: Mutually companies would enter the market as each one knows that regardless of the o
Q. Explain why despite enormous natural resources, much of Latin America's population remains in poverty and the region has been repeatedly experiencing financial crises. Answe
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