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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.
Assume that an economy's GDP Y=5000. Also assume that the government runs a deficit where tax revenue T=1000 and government expendituresG= 1500. The consumption function is represe
The price level is the monetary value of a good or service.
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Describe in detail about Exchange rate systems Various countries have different exchange rate systems. The most significant characteristic of an exchange rate system is to what
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