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Q. Consider the economy is initially consuming along the intertemporal budget constraint at point A, where no saving occurs. How does a fall in the real interest rate, r, and affect present consumption?
Answer: A diminishes in the real interest rate r causes the budget line to rotate counterclockwise about point A diminish the slope and causing a rise in present consumption.
Q. Using the diagram, show what happens to the composition of production (that is quantity of cloth per 1 unit of food) in Australia once trade is established between the two coun
Q. If scale economies were not only external to firms, but were also external to individual sites. That is, the larger the worldwide industry (regardless of where plants or firms
Q. How did countries use their policy tools to regain internal and external balance after the first oil shock of 1973? Answer: Seeing that the recession deepened over 1974 an
Q. What has been learned since 1973 with regard to the experience with floating exchange rate regime? Answer: 1. Monetary policy autonomy: Yes though floating rate didn
What can explain the failure of relative PPP to hold in reality? Answer: Government procedures of the price level differ from country to country. One cause for these differe
Q. Suppose the relative price of good 1 falls relative to the price of. What happens to the wage rate? Answer: The labour component of the price of 1 is bigger than that of p
theory of opportunity cost?
Q. Explain the following figure: Answer : The figure explicate how the money markets of two countries are linked through the foreign exchange market. The financial pol
haberler`s theory of neoclassical theory of trade
Q. What is the policy of sterilization? Give an example. Answer: • Untainted foreign exchange intervention - policy by which central banks perform equal foreign
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