Question

why is the DD curve steeper than AA?

why is the DD curve steeper than AA?

Homework Answers

Answer #1

An increase in the exchange rate in the goods and services market raises equilibrium GNP and as a result the DD curve is positively sloped.AA curve is negatively sloped. The effect of a decrease in the money supply is to shift AA curve downward.AA curve is derived from money forex model while the DD curve is derived from G&S model.The DD curve may  be negatively sloped and the DD curve will be steeper than AA curve in the short run if the currency depreciates and as a result there is J -effect on Current account.The J -curve effect is that the balance of trade of the country becomes bad in the beginning as a result of devaluation or depreciation of the currency and then it recovers and moves to a level which is higher than the initial level.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Describe what is a J curve? What are its impacts on DD and AA schedules?
Describe what is a J curve? What are its impacts on DD and AA schedules?
The following two genotypes are crossed: Aa Bb Cc dd Ee × Aa bb Cc Dd...
The following two genotypes are crossed: Aa Bb Cc dd Ee × Aa bb Cc Dd Ee. The proportion of the offspring that are expected to be aa bb Cc Dd Ee assuming Mendelian inheritance is ___.
Graphically show Shifts in the DD & AA curve when we experience... • An Increase in...
Graphically show Shifts in the DD & AA curve when we experience... • An Increase in money supply ( Ms) • A Fall in foreign interest rates (Rf) • An Increase in government spending (G) • A Fall in autonomous consumption (C0) • An Increase in domestic price level (P) (this is long run)
1.Which of the following does not affect the location of the DD curve? (a) monetary policy...
1.Which of the following does not affect the location of the DD curve? (a) monetary policy (b) government spending (c) taxes (d) export Demand (e) price levels 2.A permanent fiscal expansion under a flexible exchange rate regime (a) shifts the DD to the right and the AA schedule to the left, leaving output the same. (b) shifts the DD and the AA schedules to the right, increasing output. (c) shifts the DD and the AA schedules to the right, decreasing...
Is a demand curve showing both the substitution and income effect flatter or steeper than the...
Is a demand curve showing both the substitution and income effect flatter or steeper than the demand curve showing only the substitution effect? Graphically show and Explain. Provide a full answer.
1. The derivation and definition of DD-AA curves (and factors that shift them). 2. What are...
1. The derivation and definition of DD-AA curves (and factors that shift them). 2. What are the effects of temporary monetary and fiscal policies under flexible vs. fixed exchange rate systems in the short run? Show using both the FX and Money Market graphs and the AA-DD model . 3. Real exchange rate and its relationship with trade balance, volume vs. value effects, J-curve. 4. How do the Central Banks intervene in the FX market to keep exchange rates fixed?...
What percentage of the offspring will be heterozygous for all six genes? Aa bb Cc Dd...
What percentage of the offspring will be heterozygous for all six genes? Aa bb Cc Dd Ee Ff x AA BB Cc DD EE ff
Use the AA-DD model to assess whether the following statement is true. Illustrate your answer using...
Use the AA-DD model to assess whether the following statement is true. Illustrate your answer using graphs. "If the Bank of Japan responds to economic problems in Japan by expanding the Japanese money supply, then output in New Zealand will fall." Suppose the nominal exchange rate, E¥/NZ$, was determined by the monetary model instead of the sticky price model. Would you be able to analyze this case using DD-AA? Why or why not?
Consider an economy where the current account is negatively affected by a depreciation in the real...
Consider an economy where the current account is negatively affected by a depreciation in the real exchange rate in the short run (that is, the Marshall-Lerner condition does not hold). Explain the effects of a monetary expansion in this economy by comparing it to the baseline case where the Marshall-Lerner condition holds. Use a graphical analysis accompanied by an intuitive (verbal) explanation. (Assume that the DD curve under the revised assumption will be steeper than the AA curve.) (You have...
An oligopolist faces a demand curve that is steeper at higher prices than at lower prices....
An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which of the following is most likely? 1) The firm competes with others in the Bertrand fashion. 2) Other firms match price reductions but do not match price changes. 3) The firm competes with others in the Cournot fashion. 4) Other firms match price increases but do not match price reductions.