Output and Exchange Rates: Short Run Dynamics

This lecture covers the short-run dynamics of output and exchange rates in a global business environment, focusing on the DD schedule and factors shifting it. It discusses aggregate demand, modeling the current account, and the impact of exchange rate depreciation. The instructor explains the AA schedule, asset markets equilibrium, and factors shifting the AA schedule. Additionally, it explores the effects of monetary and fiscal policies, temporary and permanent increases in the money supply, and government spending. The lecture concludes with the long-run adjustment process, analyzing the equilibrium level of exchange rates and the implications of government spending changes.