a) Discuss the effect of a sterilized central bank purchase of foreign assets under the imperfect asset substitutability assumption. (B). Explain why the DD-AA model yields the conclusion that in an economy in which the exchange rate is fixed, the fiscal policy is more effective but monetary policy is less effective than under flexible exchange rates.
a) Discuss the effect of a sterilized central bank purchase of foreign assets under the imperfect asset substitutability assumption. (B). Explain why the DD-AA model yields the conclusion that in an economy in which the exchange rate is fixed, the fiscal policy is more effective but monetary policy is less effective than under flexible exchange rates.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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a) Discuss the effect of a sterilized central bank purchase of foreign assets under the imperfect asset substitutability assumption.
(B). Explain why the DD-AA model yields the conclusion that in an economy in which the exchange rate is fixed, the fiscal policy is more effective but
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