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Q. Explain how an increase in government spending would affect the DD-AA schedule in the short run.
Answer: A raise in government spending will raise aggregate demand, which will shift the DD to the right. If AA leftovers unchanged the new equilibrium will be at a higher Y and lower E. Ever since E is the nominal exchange rate a lower E is an appreciation of the currency.
Q. Explain the following figure: Answer: The figure depict the effect of a permanent increase in the money supply starting from full employment equilibrium. Subsequent to the i
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Q. What are the three main reasons why governments sometimes chose to devalue their currencies? Answer: 1. Permit the government to fight domestic unemployment despite the
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Q. What do you expect would be the effects of 9/11 on the size of the Eurocurrency markets? Answer: Will increase because of fear that foreign deposits in the United States wi
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