practice problems2 - Practice problems 2 Exam 2 1. Using...

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Practice problems 2 – Exam 2 1 . Using the DD – AA framework, show the phenomenon of overshooting. Use a figure to explain when it is taking place. 2 . We have been assuming that the expected exchange rate equals the rate predicted by the analysis in Chapter 15. Suppose instead that people always expect the exchange rate in the future to equal its value today. a) Draw the DD-AA diagram under this assumption b) Compare the effects of a temporary increase in the money supply on the exchange rate and output under theses two different assumptions about E e c) Compare the effects of a temporary increase in the government spending on the exchange rate and output under these two different assumption about E e . 3 . A politically charged issue in Britain at the end of the 1980s and in the early 1990s was the political membership in the exchange rate mechanism of the European monetary System (EMS). Opponents of membership said that it would force British monetary policy to be the same as German
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practice problems2 - Practice problems 2 Exam 2 1. Using...

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