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Briefly explain the meaning of the following terms.(2.5 points each) 1. Purchasing Power Parity. 2. Covered Interest Parity 3. Uncovered Interest Parity 4. Asset approach
Briefly explain the meaning of the following terms.(2.5 points each) 1. Purchasing Power Parity. 2. Covered Interest Parity 3. Uncovered Interest Parity 4. Asset approach to the Exchange Rate Short answer. (90 points) 1. Using the IS-LM-FX diagram, explain why many countries with a floating exchange rate prefer to use monetary policy rather than fiscal policy to stimulate economic activity during a recession. Explain and graph your answer. (15 points)
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