The DD-AA model to the right shows an economy's short-run equilibrium at point 1. Note: "E' = Esse Suppose the government Exchange Rate, E imposes a temporary tariff on all imports. Using the line drawing tool, show the impact of this commercial policy. Properly label this line. DD' Carefully follow the instructions above and only draw the required object. D2 According to your graph, the domestic economy will experience A. a rise in output and a currency depreciation. *B. a rise in output and a currency appreciation. AA1 Now suppose that with the passage of time it becomes increasingly clear that the tariff will be permanent. This will induce participants in the foreign exchange market to revise their expectations. More specifically, the expected future exchange rate, E, will decrease. y1 Output, Y In the DD-AA model, this revised expectation of the future exchange rate will cause O A. a rightward shift in the DD schedule, and thus a reinforcement of the effects produced by the temporary tariff. O B. an upward shift in the AA schedule, a rise in output, and a currency depreciation. O C. a leftward shift in the DD schedule, a fall in output, and a currency depreciation. OD. a downward shift in the AA schedule, a fall in output, and a further currency appreciation.
The DD-AA model to the right shows an economy's short-run equilibrium at point 1. Note: "E' = Esse Suppose the government Exchange Rate, E imposes a temporary tariff on all imports. Using the line drawing tool, show the impact of this commercial policy. Properly label this line. DD' Carefully follow the instructions above and only draw the required object. D2 According to your graph, the domestic economy will experience A. a rise in output and a currency depreciation. *B. a rise in output and a currency appreciation. AA1 Now suppose that with the passage of time it becomes increasingly clear that the tariff will be permanent. This will induce participants in the foreign exchange market to revise their expectations. More specifically, the expected future exchange rate, E, will decrease. y1 Output, Y In the DD-AA model, this revised expectation of the future exchange rate will cause O A. a rightward shift in the DD schedule, and thus a reinforcement of the effects produced by the temporary tariff. O B. an upward shift in the AA schedule, a rise in output, and a currency depreciation. O C. a leftward shift in the DD schedule, a fall in output, and a currency depreciation. OD. a downward shift in the AA schedule, a fall in output, and a further currency appreciation.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The DD-AA model to the right shows an economy's short-run equilibrium at point 1. Note: 'E' = Es/E: Suppose the government
imposes a temporary tariff on all imports.
Exchange Rate, E
Using the line drawing tool, show the impact of this commercial policy. Properly label this line.
Carefully follow the instructions above and only draw the required object.
DD1
DD2
According to your graph, the domestic economy will experience
E
1
A.
a rise in output and a currency depreciation.
B.
a rise in output and a currency appreciation.
Now suppose that with the passage of time it becomes increasingly clear that the tariff will be permanent. This will induce
participants in the foreign exchange market to revise their expectations. More specifically, the expected future exchange rate,
E°, will decrease.
AA1
In the DD-AA model, this revised expectation of the future exchange rate will cause
y1
Output, Y
O A. a rightward shift in the DD schedule, and thus a reinforcement of the effects produced by the temporary tariff.
O B. an upward shift in the AA schedule, a rise in output, and a currency depreciation.
O C. a leftward shift in the DD schedule, a fall in output, and a currency depreciation.
O D. a downward shift in the AA schedule, a fall in output, and a further currency appreciation.
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