Why does an exchange rate-output combination lying above both DD and AA jump first to AA in equilibrium?
A) Asset prices can adjust immediately.
B) Production plans can adjust immediately.
C) to preserve full employment
D) Prices are nominal and demand is real.
E) Aggregate demand adjusts faster than output.

Question

Quizplus · Accepted Answer

Asset prices, including exchange rates, can adjust immediately to new information or market conditions, allowing the economy to move quickly towards the AA curve, which represents asset market equilibrium.

Why Does an Exchange Rate-Output Combination Lying Above Both DD