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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

In the model of the open economy just developed, two markets determine two relative prices. What are the markets? What are the two relative prices?

To determine

The two different markets and two different prices determined by them.

Explanation

The foreign exchange market is the place of market where the participants are able to buy and sell the different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy, which includes the loans, bonds, and the savings deposits.

Thus, the two different markets that are developed in the economy are the market for the lonable funds in the economy and the market for the foreign currency exchange in the economy...

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