Purchase Solution

Use the DD-AA model to examine the effects of a one-time rise in the foreign price level

Not what you're looking for?

Ask Custom Question

1. Use the DD-AA model to examine the effects of a one-time rise in the foreign price level, P*. If the expected future exchange rate rises immediately in proportion to P* (in line with PPP), show that the exchange rate will also appreciate immediately in proportion to the rise in P*. If the economy is initially in internal and external balance, will its position be disturbed by such a rise in P*?
2. If foreign inflation rates rise permanently, do you expect floating exchange rates to insulate the Canadian economy in the short-run? How about the long-run? Why?
3. How would you analyze the use of monetary and fiscal policy to maintain internal and external balance under a floating exchange rate?
4. Under what type of exchange rate system, fixed or floating, is there a larger output effect arising from a transitory increase in the foreign interest rate, R*? Does your answer change if the increase in R* is permanent? Does it matter if this increase is due to a rise in foreign real interest rates or a rise in foreign inflation expectations (the Fischer effect)?

Attachments
Purchase this Solution
Solution Summary

Under what type of exchange rate system, fixed or floating, is there a larger output effect arising from a transitory increase in the foreign interest rate, R*?

Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • fixed exchange rate regime



    c) Effects of fiscal expansion: Tax cut, causing aggregate demand to rise, causing Y to rise in the absence of capacity constraints.

  • Fixed and Floating Exchange Rate Systems

    Use the AA-DD diagram to discuss any change in the short-run level of output.

  • Stock Market and confidence intervals

    aa) 95.44% sure each daily price is between $30 and $40. bb) 95.44% of daily stock prices fall into $30 and $40. cc) 95.44% sure the true average price of stock A in between $30 and $40. dd) 95.44% sure the sample average price of these 64 daily prices

  • Genetics problem set

    could be either AA or Aa Test cross AA x aa = all Aa offspring Test cross Aa x aa = 1/2 Aa and 1/2 aa So we can determine the genotype of a seed with the dominant phenotype by crossing it to a seed with the recessive phenotype. 4.

  • Haplotype Determination using Clark's Algorithm

    Bb CC Dd Use the Clark's algorithm to resolve the haplotypes for each individual.

  • AA-DD diagrammatic analysis

    4998 Use a AA-DD diagrammatic analysis? And other questions.. Use the AA-DD diagrammatic analysis to perform the following. Assume a flexible exchange rate regime. Label your graphs and your changes clearly.

  • Tetrahybrid cross: probabilities of genotypes

    is only one way to form aa There is only one way to form bb There is only one way to form cc There is only one way to form dd Thus the total number of ways in which aabbccdd is formed = 1 x 1 x 1 x 1=

  • Skewed Distribution and Sampling (Multi Choice)

    aa) It is the distribution of a data set of 9 students time. bb) It is normally distributed. cc) Its distribution has a mean of 65 minutes and a standard deviation of 8/3 minutes, but the shape of the distribution may not be normal. dd) Its distribution

  • Chromosomes

    AA Bb CC DD EE Ff GG HH Ii JJ We can simply the question by eliminating all of the homozygous genes. In other words, AA can only give an A gene to the gamete. The same goes for CC, DD, EE, GG, HH and JJ.

View More Related Solutions