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Q. Use the II - XX framework in order to show graphically how inflation can be imported from abroad unless exchange rates are adjusted.
Answer: Suppose that the home economy is countenance with foreign inflation that is P* is rising. For a known price level at home that P fixed the increase in P* will lower E such that EP*/P is unchanged. This entail that the II and XX curves will shift descending in such a way that the distance between the original E and the final E will be equal to E _P*/P* that is revaluation of the currency.
Q. Consider, as a result of several dynamic factors associated with exposure to international competition, Albania's economy grew, and is now shown by the rightmost production pos
Q. "No country is abundant in everything." Discuss. Answer: the idea of relative (country) factor abundance is (like factor intensities) a relative concept. When we recogniz
Does the existence of non-tradable goods allow for deviations from Purchasing Power Parity? Answer: Yes the continuation of non-tradable goods permits deviations from Purchas
Q. Explain Purchasing Power Parity. Answer: PPP () states that the exchange rate between two countries' currencies equals the ratio of the countries' price levels.
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Question: a) With the help of illustrative and numerical examples explain fully the concepts of spatial and triangular parity and arbitrage in the context of foreign exchange.
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The Concept of Comparative Advantage is explained below: To illustrate the concept of the comparative advantage, we take the instance of two equi-sized equi-endowment countries
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