Economy under fixed and floating exchange-rate regimes, International Economics

Assignment Help:

Q. Use the DD - AA model to examine and compare the response of an economy under fixed and floating exchange-rate regimes to a temporary fall in foreign demand for its exports.

Answer: The DD curve moves to the left. When the exchange rate floats for the reason that the demand shift is assumed to be temporary it doesn't change the long-run expected exchange rate and thus does not move the asset market equilibrium schedule AA. Therefore, E goes up that is the currency depreciates and output falls.

In a fixed exchange rate policy the central bank should prevent the currency depreciation that occurs under a floating rate therefore it buys domestic money with foreign currency dropping the domestic money supply and shifting the AA to the left and down. E will stay remain constant and output will fall.


Related Discussions:- Economy under fixed and floating exchange-rate regimes

Member of the wto, Q. It has been claimed that the Chinese burst of modern...

Q. It has been claimed that the Chinese burst of modernization which has been propelling its manufactured exports throughout the world at an unprecedented rate, is made possible b

Assignment on International Economics, Can you please sent me Students Assi...

Can you please sent me Students Assignment on Above Title

ECONOMICS, In the Ricardian analysis, why does each trading partner have an...

In the Ricardian analysis, why does each trading partner have an incentive to produce at an endpoint of its production-possibility frontier? Why are prices of factors of production

Economic effect of nationalization, Research about the effects of the Natio...

Research about the effects of the Nationalization in terms of: Economic effect of nationalization -International -What is happening to FDI? How it has affected other inter

Discuss the hechscher-ohlin model, Q. Countries that are willing to toler...

Q. Countries that are willing to tolerate an unusually high quantity of pollution relative to their supplies of other factors would leads to export "pollution-intensive" goods. D

Theories about the problems of lower income countries, Theories about the P...

Theories about the Problems of LICs are discussed below: In order to explain this big problem of poverty and of the asymmetric ownership of the wealth and income in the world,

Long term self-generated economic growth, Q. It can be argued that Japan's...

Q. It can be argued that Japan's explicit promotion of its microchip industry was an excellent paradigm of successful industrial policy. What criteria could you apply to calculat

Evaluate how homes macroeconomic policies affect foreign, Q. Imagine a wor...

Q. Imagine a world with two large countries, Home and Foreign. Evaluate how Home's macroeconomic policies affect Foreign. Compare the small and the large country cases; consider

Peripheral Capitalism, I am writing a paper on dependancy theory in Ghana a...

I am writing a paper on dependancy theory in Ghana and I am having trouble understanding the basics of peripheral capitalism.

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