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Us and European Foriegn Exchange Flow chart
Answer: The figure explicate how the money markets of two countries are linked through the foreign exchange market. The financial policy actions by the Fed affect the U.S. market interest rate changing the dollar/euro exchange rate that clears the foreign exchange market. The European System of Central Banks (ESCB) is able to affect the exchange rate by changing the European money supply and interest rate.
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Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets. Answer: For instance If the U.S price level increase by
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