International trade, Macroeconomics

Suppose home cost pricing prevails in international trade, while world output is declining. Consider two economies, A and B, both having floating exchange rates and the same monetary policy regime; the only difference being that the wage costs of economy A increase relative to those of economy B. How can the Mundell-Fleming model be used to explain what happens to the trade balance and output of these two economies.

Posted Date: 4/2/2013 6:32:46 AM | Location : United States

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