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Q. Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.
Answer: Because Norway's interest rate should equal the euro interest rate any pure shifts in the AA curve will result in immediate reserve outflows or inflows that leave Norway's interest rate unchanged.
What will be the effects of an increase in real national income on the interest rate? Answer: An enhance in real national income will increase the interest rate. If investment
Q. Describe the chain of events leading to exchange rate determination for the following cases: 1. An increase in the U.S money supply 2. An increase in the growth rate of the
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Q. Using a figure illustrate the simultaneous equilibrium of the foreign exchange and domestic money markets when the exchange rate is fixed at E0 and is expected to remain fixed a
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