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Q. What is the national income identity for an open economy? Answer: Y = C + I + G + EX - IM.
Q. In autarky, Country P was producing at point 5. With trade, could its production point be found above or below point 5? Explain why. What must happen in the K/L intensity ratio
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Q. Describe the effects of the Smoot-Hawley tariff imposed by the United States in 1930. Answer: It had a damaging consequence on employment abroad. The foreign response occu
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Q. Explain how an increase in the real exchange rate affects exports and imports. Answer: While the real exchange rate rises domestic products are cheaper relative to
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