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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. What is the real exchange rate between the dollar and the euro equal to? Answer: Let actual dollar/euro exchange rate q$/ENominal exchange rate E$/EPrice of an unchan
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Criticism against Hechscher-Ohlin type trade theories is explained below: The foremost criticism leveled against Hechscher-Ohlin type trade theories are that they views compara
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