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Q. What do you mean by Capital Flows?
With free capital flows, this is a very unreasonable assumption. If we domestic interest rate increase against the foreign interest rates, capital will flow into our country that would drive down the domestic interest rate again.
Most reasonable models in that domestic interest rate is affected by foreign interest rates are more complicated. To understand such models, you should first understand models where this complication doesn't arise. Additionally predictions from models where domestic interest rate isn't affected by foreign interest rates are fairly similar to more realistic models which allows for capital flows.
Explain whether, the following statements are TRUE, FALSE or UNCERTAIN. Briefly justify your answer. (i) The circular flow shows how real resources and financial payments flow
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What are the general principles about marginal and average total cost curves? General principles which are always true concerning a firm’s marginal and average total cost curve
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