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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 why East Asian countries have done so well relative to South American countries. Answer: Generally the reasons are less moral hazard less government debt to forei
Q. "The line distinguishing between external and internal goals can be fuzzy." Discuss. Answer: True For instance employment target for export industries when export growth m
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Q. Explain why it may make sense for the United States, Japan, and Europe to allow their mutual exchange rate to float? Answer: Even though these regions trade amid each other
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Explain Purchasing Power Parity. Answer: PPP ( ) states that the exchange rate between two countries' currencies equals the ratio of the countries' price levels. A decr
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