PS5_sln

PS5_sln - Econ 356 Introduction to International Finance...

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Econ 356 Introduction to International Finance Spring 2010 Department of Economics, University of British Columbia Viktoria Hnatkovska Problem Set 5: Solution. 1. Problem 4, Chapter 16 in KO, 8th edition. A permanent fall in private aggregate demand causes the DD curve to shift inward and to the left and, because the expected future exchange rate depreciates, the AA curve shifts outward and to the right. These two shifts result in no e/ect on output, The net e/ect is a depreciation in the nominal exchange rate and, because prices will not change, a corresponding real exchange rate depreciation. A macroeconomic policy response to this event would not be warranted. 2. Problem 5, Chapter 16 in KO, 8th edition. current account. In this diagram, the schedule XX represents combinations of the exchange rate and income for which the current account is in balance. Points above and to the left of XX represent current account surplus, and points below and to
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PS5_sln - Econ 356 Introduction to International Finance...

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