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Q. Explain how the German Bundesbank gained its low-inflation reputation.
Answer: Essentially Germany's experience with hyperinflation in the 1920s and yet again after World War II left the German electorate with a deeply rooted fear of inflation. The law set up the Bundesbank singled out the defence of the DM's real value as the primary goal of the German central bank.
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.
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Q. Explain why, according to Feldstein and Horioka, one should expect that domestic investment rates diverge widely from saving rates. Answer: The decisions of corporations t
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