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Q. Use a figure to study the following question: Consider that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the asset and output markets are out of equilibrium. Explain what will happen next.
Answer: Because the asset market adjusts extremely quickly the exchange rate drops immediately to a point on the AA schedule. There will be surplus demand for the domestic currency for the reason that the high expected future appreciation rate of the domestic currency implies that the expected domestic currency return on foreign deposits is below that on domestic deposits. This surplus demand leads to an immediate fall in the exchange rate.
Q. Using the II - XX framework, show using a figure that fiscal policies by themselves cannot bring the economy to both internal and external balances. Answer: Starting at poi
Q. Who are the main actors in the international capital market? Answer: 1. Commercial banks. 2. Corporations. 3. Non-bank financial institution
Q. Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets. Answer: For instance If the U.S price level increase
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Q. Illustrate why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at leas
Q. Using the DD - AA framework, show the phenomenon of overshooting. Use a figure to explain when it is taking place. Answer: The figure below illustrates the phenomenon of ov
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Given the following hypothetical data (in millions of naira): 1. gross private domestic investment N59 2. contributors for social insurance N8 3. inter
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Q. What do you think about international? Answer: A prescribed procedure whereby a country is able to seek international legal authorization to temporarily stop paying i
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