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Honduras fixes its currency, the Honduran lempira (HNL), to the U.S. dollar. Suppose Honduras can be described using the AA-DD model. Consider changes in the
Honduras fixes its currency, the Honduran lempira (HNL), to the U.S. dollar. Suppose Honduras can be described using the AA-DD model. Consider changes in the exogenous variables in the left column. Suppose each change occurs ceteris paribus. Indicate the short-run effects on the equilibrium values of Honduran GNP, the Honduran interest rate (iHNL), the Honduran trade deficit, and the exchange rate (EHNL/$). Use the following notation: + the variable increases the variable decreases 0 the variable does not change A the variable change is ambiguous (i.e., it may rise, it may fall) GNP iHNL EHNL/$ An increase in U.S. interest rates A decrease in U.S. interest rates
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