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Q. Explain how the AA schedule is derived.
Answer: For a fixed real money supply an enhancement in output leads to an increase in the domestic interest rate. In the foreign exchange market an enhancement in the domestic interest rate leads to a lower nominal exchange rate therefore appreciating the currency. Therefore the relationship among nominal exchange rate and output is negative this leads to a negative slope of the AA schedule which has the ostensible exchange rate and output on its axes.
Q. Discuss the role of more "transparency" in reducing the risk of financial crisis. Answer: Must discuss the Asian crisis where foreign banks lent money to Asian enter
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. Discuss the problems that the EMU will face in the coming years. Answer: Europe isn't an optimum currency area so asymmetric economic developments within different cou
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"Although the price levels appear to display short-run stickiness in many countries, a change in the money supply creates immediate demand and cost pressures that eventually lead t
Q. Using an equation, explain why governments prefer to avoid excessive current account surpluses. Answer: This pursue from the national income identity S = CA + I which says
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