ECON 345 Study Guide - Final Guide: Monetary Policy, Purchasing Power Parity, United States Dollar
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The following questions are short answer: (20 points). (a) suppose an economy experiences a temporary decline in the demand for its exports. Use the dd-aa model to compare and contrast the economy"s response under. Xed and exible exchange rates. (b) now suppose there is a temporary increase in money demand. Again compare and contrast how the economy responds under xed and exible exchange rates. (c) use your answers to parts (a) and (b) to draw conclusions about whether xed or. Exible exchange rate systems are more e ective at stabilizing the level of output: (15 points). Recently there has been a lot of debate within europe and japan about the need to support the u. s. dollar. We know from class that the u. s. could raise the value of the dollar either by contractionary monetary policy (i. e. , a reduced money supply) or by expansionary scal policy (i. e. , an increase in government spending).
