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Q. Using an equation, explain why governments prefer to avoid excessive current account surpluses.
Answer: This pursue from the national income identity S = CA + I which says that total domestic savings S is divided among foreign asset accumulation CA and domestic investment I.
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Q. Explain the difference between the following two expressions: Y = C(Y d ) + I + G + CA(EP*/P, Y d ) and Y = C + I +G + CA Answer: The first expression corresponds to a
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draw diagram of price leadership model
Discuss the relationship between PPP and the Law of One Price. Answer: The law of one price is applies to individual commodities while Purchasing Power Parity applies to the g
Q. Calculate the effects of the fall in the relative price of good 2 on the income of the specific factors capital and land. Answer: For the reason that good 2 uses land, a f
Q. What are the factors affecting the demand for foreign currency? Answer: Three factors that affect the demand for foreign currency are risk, expected return, and liquidity.
Q. Illustrate why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at leas
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