Output and Exchange Rate in the Short Run - PowerPoint PPT Presentation

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Output and Exchange Rate in the Short Run

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Exchange rate. Output. AA - Schedule. 2. Along the AA schedule: AA-schedule shifters: ... Interactions Between Output and Exchange Rate (P,G,r) are given. G ... – PowerPoint PPT presentation

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Title: Output and Exchange Rate in the Short Run


1
Output and Exchange Rate in the Short Run
1
2

1
2
1
2
AA - Schedule
Along the AA schedule
Exchange rate
A
AA-schedule shifters
1. A change in 2. A change in 3. A change in 4. A
change in 5. A change in
A
Output
2
3
DD - Schedule
Aggregate Demand (D)
DY
Y
Assumption Investment and Private Consumption
are not sensitive with respect to the real rate
of interest
3
4
DD - Schedule
S
D
DD-Schedule Shifters
1. T, G 2. P or P 3.Investment
D
Y
4
5
The Equilibrium in the Short Run
D
A
S
A
D
Y
Full equilibrium obtains when asset market and
output market are equilibrated
5
6
A
A
given
M
A
A
AA
6
7
Interactions Between Output and Exchange Rate
S
D
(P,G,r) are given
G
D
Y
DD
7
8
Maintaining full employment after a fall in
demand for the countrys export
2
1
The Result Depreciation
8
9
A Transitory Monetary Expansion
S
D
2
1
D
Y
9
10
A Permanent Monetary Expansion
S
D
Short run
2
3
1
D
Y
The AA-schedule shifts rightwardly because
( Point 3 Transitory Monetary Expansion)
10
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