What is the AA-curve? Why does it have a negative slope? What factors cause it to shift?
What will be an ideal response?
The AA-curve is the specific levels of E and Y under which the money and foreign exchange markets are in equilibrium.
The AA-curve has a negative slope because an increase in Y will cause E to fall (a domestic currency appreciation).
The factors that affect it are: the money supply, price level, expected exchange rate, foreign interest rates, and the level of real money demand.
You might also like to view...
How would you define convergence?
A) tendency for gaps between industrial countries' per-capital incomes to narrow B) tendency for gaps between all countries' per-capital incomes to narrow C) the theory that a crisis in a low-income country will spread to all countries, regardless of debt structure D) the theory that a crisis in a low-income country will spread to only those countries which had lent money to the original country E) tendency for the world distribution of income to be persistently unequal
The marginal rate of substitution is
a. the slope of a budget constraint. b. always constant. c. the slope of an indifference curve. d. the point at which the budget constraint and the indifference curve are tangent.