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Output and Exchange Rate in the Short Run

Output and Exchange Rate in the Short Run. 1. 2. 1. 2. 1. 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. DD - Schedule. Aggregate Demand (D). D=Y. Y.

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Output and Exchange Rate in the Short Run

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  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) D=Y 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 country’s 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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