Refer to above figure. Assume that Boeing is the first to enter ...

[Hungry!]

Refer to above figure. Assume that Boeing is the first to enter the Hungarian market. Without a government subsidy what price would they demand, and what would be their total profits?
 
  What will be an ideal response?

Question 2

Explain how the AA schedule is derived.
 
  What will be an ideal response?

[trampas]

Answer to Question 1

12 Million, 16.

Answer to Question 2

For a fixed real money supply, an increase in output leads to an increase in the domestic interest rate. In the foreign exchange market, an increase in the domestic interest rate leads to a lower nominal exchange rate, thus appreciating the currency. Therefore, the relationship between nominal exchange rate and output is negative; this leads to a negative slope of the AA schedule, which has the nominal exchange rate and output on its axes.