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Q. How can long-run values in the real exchange rate change?
Answer: A elevate in world relative demand for U.S output origins a long-run real appreciation of the dollar against the euro a fall in the real dollar/euro exchange rate.
A proportional expansion of U.S output causes a long-run real depreciation of the dollar against the euro (a rise in the real dollar/euro exchange rate).
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Q. Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. Answer: Using the GG - LL framework
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