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
Define Hedger - Market Participants A hedger desires to prevent price variation by locking in a purchase price of the underlying asset by a long position in a futures contract

Silvana Zhang of Sajjad Jafri & Geopeng Li Limited is considering purchasing a new widget making machine. She would like to know the maximum price she should pay for the new machin

Question: Susan started her current job at age 30, with the normal retirement age at 60. The remuneration package of her employment includes the following benefits on top of he

What is the De-merger This is splitting up of a group into two or more separate bodies. The group is split into separate entities, but the shareholders remain the same. It is o

Emily Jill RogersĀ  is planning to buy a house but needs assistance as to how she will finance the purchase. She has supplied you with some information and asked you to help her wit

Does the shareholders' equity represent the savings a company has accumulated through the years? No. The number which shows in the Shareholder's Equity of a company that was fo

The management of Nelson plc wish to estimate their firm's equity beta. Nelson has had a stock market quotation for only two months and the financial management feels that it would

The coupon rate of these types of bonds is adjusted periodically at a fixed margin over a reference rate. It can be adjusted southward only and once it is adjuste

What does the "weight" refer to in the weighted average cost of capital? The weight pass on to in weighted average cost of capital refers to the portion of the total capital in

Question: (a) Explain and discuss the hedging strategies using futures (b) Boeing (an American company) delivered on 1st September 2008 an airplane to a Canadian company.