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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.
Explain the classical theory of employment with relaxed assumption?
Q. Explain how the money markets of two countries are linked through the foreign exchange market. Answer: The financial policy actions by the Fed affect the U.S. interest rate
Q. Describe the main provisions of the Maastricht Treaty of 1991. Answer: It identified for a single currency by January 1/1999 harmonizing social security policy insid
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Q. "The balance of payments is always balanced." Discuss. Answer: True each international transaction automatically enters the balance of payments twice once as a debit and o
Q. Present the case against floating exchange rates. Answer: 1.The discipline obligatory on individual countries by a fixed rate would be lost. 2. Undermine specu
Q. The 1980s are considered as the "lost decade" of Latin American growth. Explain why? Answer: Whilst the Great Depression made it hard for developing countries to make pa
Q. Describe and explain the relationship between expected inflation rates in two countries and their interest rate differential according to the PPP theory. Answer: Expected p
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diagram
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