Answer :
Answer:
An import tariffs will make imports costly and force the domestic consumers to reduce consumption of imported goods, and increased the consumption of domestically produced goods
With an increased output the DD-AA model increases the money demand and thus shifts the DD curve towards the right, which therefore decreases the exchange rate; which implies currency appreciation.
If all countries retaliate to imposition of an import tariffs by the same, this will lead to a conflicting situation.
Explanation:
Solution
Government task on imported goods design either to raise revenue or protect domestic industries from foreign competition is called import tariffs.
An import tariffs will make imports costly and force the domestic consumers to reduce consumption of imported goods, and increased the consumption of domestically produced goods. for this domestic output increases.
The DD-AA model, an increased output increases the money demand and thus shifts the DD curve towards the right, which therefore reduces the exchange rate; which implies an appreciation of the currency.
Under fixed exchange rate a deviation in exchange rate is responded by central bank intervention in the foreign market.
the central bank must buy foreign assets with money, thereby increasing the money supply which corresponds to a balance surplus. the money expansion in the economy shifts AA curve towards the right.
As a result of this, the economy regains original equilibrium with higher output and higher official international reserve but at the initial rate of exchange.
Note: Kindly find an attached copy of part of the solution to this question below.
In the DD-AA model, the increased output increases the demand for money and thus converts the DD curve to the right.
What is the DD-AA model?
The AA-DD model is defined by a diagram consisting of two curves (or lines): an AA curve representing the equity of the asset market found in the money market and foreign exchange markets and the DD curve.
The cost of imported goods will make imported goods more expensive and force domestic consumers to reduce the consumption of imported goods and increase the consumption of locally produced goods.
With the increased effect the DD-AA model increases the demand for money and thus turns the DD curve to the right, which reduces the exchange rate; which means the introduction of the currency.
If all countries retaliate against import tariffs equally, this will lead to a conflict.
The government's job in designing imported goods to increase revenue or to protect domestic industries from foreign competition is called imports.
Exports of imported goods will make imports more expensive and force domestic consumers to reduce the use of imported goods and increase the consumption of locally produced goods. as a result of this increase in domestic production.
The central bank should buy foreign goods in cash, thereby increasing the cash flow associated with the accumulated balance. economic
Thus, the economy also gains initial equity with high yields and a fairly international standard but at the first level of trade.
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