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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.
What effect do non-tradable goods have on PPP? Answer: The consequence is quite substantial. In 1997 the production of non-tradable goods accounted for about 55% of U.S GNP.
Q. What is the national income identity for an open economy? Answer: Y = C + I + G + EX - IM.
Q. "The costs and benefits for a country from joining a fixed-exchange rate area such as the EMS depend on how well-integrated its economy is with those of its potential partners.
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2. If a country's growth is biased in favor of its import, this should unequivocally improve its terms of trade and its economic welfare. Discuss. Answer: Suppose the Japan
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