Dd-aa schedule, International Economics

Assignment Help:

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 happen next.

Answer: Since the asset market adjusts extremely quickly the exchange rate drops immediately to a point on the AA schedule and there will be excess demand for the domestic currency because 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 escorts to an immediate fall in the exchange rate.


Related Discussions:- Dd-aa schedule

Floating exchange-rate regime, Q. Why would you suggest to a govern...

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

Explain interest rate differential according to ppp theory, Describe and e...

Describe and explain the relationship between expected inflation rates in two countries and their interest rate differential according to the PPP theory. Answer:  Expected pric

International monetary system, Q. How did the international monetary syste...

Q. How did the international monetary system influence macroeconomic policy-making and performance during the gold standard era (1870 - 1914)? Answer: London was the hub of t

Opportunity cost, what is the criticism of opportunity cost

what is the criticism of opportunity cost

Classical theory and neo classical theory, difference between classical an...

difference between classical and neo classical theory of international trade.

Positive scale economies, Q . Is it possible that if positive scale econom...

Q . Is it possible that if positive scale economies characterize an industry, that its equilibrium can be consistent with purely competitive conditions? Explain how this would hap

Getting the Benefits from Technological Progress, What is the significance ...

What is the significance of the observations made by OECD in this case study regarding “The OECD economies are more strongly dependent on the production, distribution and use of kn

International trade, explain the product cycle theory in international trad...

explain the product cycle theory in international trade

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd