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1. i) Explain the difference between nominal exchange rate and real exchange rate. ii) What happens to the balance of trade if the real exchange
1. i) Explain the difference between nominal exchange rate and real exchange rate. ii) What happens to the balance of trade if the real exchange rate increases? (explain). iii) What does the empirical evidence for Spain says about the relationship between trade balance and the effective real exchange rate? iv)If the real exchange is equal to 2, then the economy is below potential level of GDP. Is this statement true or false?
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