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Q. What are the predictions of the PPP theory with regard to the real exchange rates?
Answer: The real exchange rate among two countries is a broad summary measure of the prices of one country's goods and services relative to the other's. PPP predicts that the actual exchange rate never permanently changes which is different from nominal exchange rates that deal with the relative price of two currencies
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Q. What are the three main reasons why governments sometimes chose to devalue their currencies? Answer: 1. Permit the government to fight domestic unemployment despite the
Discuss the effects of ongoing inflation based on the PPP theory. Answer: Other things equivalent money supply growth at a constant rate eventually results in ongoing price le
Q. Explain why one can write the demand for money as follows: Md = P L (R, Y) Answer: The collective money demand is proportional to the price level. Imagine that every prices
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