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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 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.
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
The external economic environment could have implications for the project in various areas. There is no tax in Saudi Arabia; this is a significant political effect on the projec
if the US dollar depreciates dramatically relative to the Chinese yuan, what effect would this have on consumers and businesses in each country? When is a falling dollar good or ba
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Q. Show the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighbouring European countries using the AA - DD framework. A
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Ask qu. What are the various forms of economic integration? estion #Minimum 100 words accepted#
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