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Q. Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium. Explain what will h
illustrate the circular flow of income of an open economy and explain the effects of various injections and withdrawal in the circular flow?
Q. What are the main points of economic life that macroeconomics analysis is most concerned with? Answer: There are four major aspects that are saving, unemployment, trade imb
Q. Explain why, according to Feldstein and Horioka, one should expect that domestic investment rates diverge widely from saving rates. Answer: The decisions of corporations t
Q. Explain how the money markets of two countries are linked through the foreign exchange market. Answer: The financial policy actions by the Fed affect the U.S. interest rate
Q. It is impossible for economic growth in a small country to lower that country's economic welfare, regardless of the bias of the growth. Explain. Answer: This is a true st
Q. In 1986, the price of oil on world markets dropped sharply. Since the United States is an oil-importing country, this was widely regarded as good for the U.S. economy. Yet in
Q. How mobile is Europe's labor force? Answer: Differences in culture and language discourage labour movements between European countries. Differences in regional unempl
Q. Explain why East Asian countries have done so well relative to South American countries. Answer: Generally the reasons are less moral hazard less government debt to forei
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
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