Question
If you are given the following figure regarding AA curve, as follows; answer the following questions: A) Why AA curve is negatively sloped? B) What
If you are given the following figure regarding AA curve,
as follows; answer the following questions: A) Why AA curve is negatively sloped? B) What are the main factors that shift the AA curve upwards? C) Assume that the central bank decides to reduce the money supply stocks, what is the effects of this policy on the foreign exchange rate and income level? D) Under what conditions in which the assets market will be in equilibrium? E) Why the fiscal policy is effective under a fixed exchange rate, while monetary policy is ineffective under a fixed exchange rate?
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