Stabilization policies in the aa-dd model, Financial Management

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).

Posted Date: 2/15/2013 12:03:26 AM | Location : United States







Related Discussions:- Stabilization policies in the aa-dd model, Assignment Help, Ask Question on Stabilization policies in the aa-dd model, Get Answer, Expert's Help, Stabilization policies in the aa-dd model Discussions

Write discussion on Stabilization policies in the aa-dd model
Your posts are moderated
Related Questions
give and explain the seven sources of finance

Effect on Stock Valuation Until the 1960s, common stocks were viewed as a good instrument against loss caused by inflation. Also, before 1960, stocks were not providing full he

Institutional Clearing Member (ICM) A Financial Institution has to subscribe to at least 100 equity shares of Rs.10,000 each to become an Institutional Clearing Member of COFEI

An asset-backed security is a type of bond or note that is based on a pool of assets, or collateralized by the cash flows from a specified pool of underlying assets. As

Preferred Stock This is a category of capital stock that will gives its holders preference  over common stockholders in the distribution  of earnings  or rights to the assets o

Q. Working capital mini Qs? During January 20X4, Gazza Ltd made credit sales of £30,000 that have a 25% mark up. It also purchased £20,000 of inventories on credit. Calculat

Q. What is Unsystematic Risks? Unsystematic Risks stems from a managerial inefficiency, technological change in the production process, availability of raw material, changes in

Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Repurchase agreement is a contract wherein the seller of a security agrees to buy back the same security from the purchaser at a specified price and time. It is also