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Illustrate about the Effective exchange rate
Assume that we are interested in external competitiveness of a country, say Japan. To do this we could look at evolution of a specific exchange rate, say exchange rate between the Japanese yen (JPY) and USD. The problem with this idea is that this exchange rate will reflect the external competitiveness and events in US as much as in Japan. If we want to isolate Japan without including events in other nations, we look at the effective exchange rate instead. Effective exchange rate is the price of a basket of currencies where every currency is weighted in relation to its significance to the country. Then such a price level is divided by a constant such that its value is exactly 100 at a given point in time. If, for instance, price index is 110 one year after the base year, then currency has depreciated by an average of 10% against other currencies that year.
Who decides what goods services will be produced and sold in the US? Ans) It is mostly the American consumer. The US government also plays a big role in the nation's economy, co
is/lm curve
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If 5000 units are sold and income increases by 20% with an income elastiticy of +2, what will the number of sales units be after the increase
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