Author Question: Using the GG-LL framework, analyze the effect of an increase in the size and frequency of sudden ... (Read 173 times)

formula1 · **on:** Jun 30, 2018

Using the GG-LL framework, analyze the effect of an increase in the size and frequency of sudden shifts in the demand for a country's exports.

What will be an ideal response?

Question 2

What is one way to offset the economic stability loss due to fixed exchange rates?

What will be an ideal response?

chloejackso · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Such a change pushes LL upward and to the right. Thus, the level of economic integration at which it becomes worthwhile to join the currency rises. In general, increased variability in the product markets makes countries less willing to enter fixed exchange rate areas. This prediction helps explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. See also Chapter 19.

Answer to Question 2

Fiscal federalism is one solution in which the EU transfers economic resources from members with healthy economies to those suffering economic setbacks. These transfer payments come in the form of welfare benefits, and they are usually financed by the taxes that other member states pay. Ultimately, the extent of fiscal federalism is limited by the EU's restricted taxation powers.