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452ASS42016.pdf The Real Exchange Rate and Relative Price of Non-Traded Goods. Suppose that PPP does NOT hold.

452ASS42016.pdf

The Real Exchange Rate and Relative Price of Non-Traded Goods.

Suppose that PPP does NOT hold.

  1. Explain the role of movements in the relative price of non-traded goods for real exchange rate fluctuations, using a simple decomposition of the real exchange rate into two parts to illustrate your answer.
  2. How does a real exchange rate depreciation, due to any source, affect equilibrium real income, the home equilibrium interest rate, and the home price level? Use diagrams to illustrate your answer.


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REAL EXCHANGE RATES.doc

Running head: REAL EXCHANGE RATES Real Exchange Rates
Student’s Name
Institution Real Exchange Rates 1 REAL EXCHANGE RATES 2
Question 1: There has been large fluctuation in real exchange rates...

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