Exam 17: Output and the Exchange Rate in the Short Run

Use a figure to study the following question: Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD,where both the output and asset markets are out of equilibrium.Explain what will happen next.

What is the AA-curve? Why does it have a negative slope? What factors cause it to shift?

Discuss the main factors affecting the position of the DD schedule.

When the real exchange rate rises

A naïve implication of the DD-AA framework is that either fiscal or monetary policy can lead to full employment.Discuss why this view is naïve.

Fill in the following table.

How is the AA schedule derived?

Why does an exchange rate-output combination lying above both DD and AA jump first to AA in equilibrium?

Why is the economy at full employment in the long run?

The domestic currency price of a representative foreign expenditure basket is

Show the effects of a permanent increase in the money supply.

Explain how does a rise in real income affect aggregate demand?

An increase in the real exchange rate

How would you define a DD schedule?

Monetary expansion causes the current account balance to increase in the short run.Discuss.Is the same the case for fiscal expansion?

What is the real exchange rate? What is its relationship to the current account?

Describe a J Curve.

A real depreciation of a nation's currency gives rise to the ________ effect and the ________ effect on the current account.

Discuss the main factors affecting the position of the AA schedule.

The J-curve illustrates which of the following?