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Q. Discuss the differences between Absolute PPP and Relative PPP.
Answer: Absolute Purchasing Power Parity (PPP) states that the exchange rate between two currencies equals the ratio of their price levels. Relative Purchasing Power Parity (PPP) affirms that the percentage change in the exchange rate between two currencies over a given period equals the dissimilarity between the price rises rates of those two currencies.
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Q. Use the DD - AA model to examine and compare the response of an economy under fixed and floating exchange-rate regimes to a temporary fall in foreign demand for its exports.
Q. Using a figure illustrate the simultaneous equilibrium of the foreign exchange and domestic money markets when the exchange rate is fixed at E0 and is expected to remain fixed a
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