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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. How did the international monetary system influence macroeconomic policy-making and performance during the interwar period (1918 - 1939)? Answer: Governments efficiently sus
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Q. Is Europe an optimum currency area? Answer: Yes the area's economy is strongly integrated with its own: most EU members export as of 10 to 20 percent of their output
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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