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Q. Explain the purpose of the following figure. Show the effects of German unification on Germany's interest rate.
Answer: The major purpose is to show that different interest rates exist for different assets since foreign currencies are different assets. From 1990 to 1995 the DM interest rate is elevated than that of the United States. Exclusive of this period the dollar rates are higher reflecting higher inflation in the United States and depreciating of the dollar versus the German currency.
Q. Explain how the German Bundesbank gained its low-inflation reputation. Answer: Essentially Germany's experience with hyperinflation in the 1920s and yet again aft
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Q. It is probable that trade based on external scale economies can leave a country worse off than it could have been without trade. Illustrate how this could happen. Answer:
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