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Do it correctly, i will upvote (to) Consider a two-country world. home and foreign. Each country has a bundle of traded (T) and nontraded goods
Do it correctly, i will upvote
(to) Consider a two-country world. home and foreign. Each country has a bundle of traded (T) and nontraded goods (N). Production occurs with labour only with production functions. YI=AIL? and Y;=A:L}\" with i=N and T. Derive the equilibrium relative prices of iradabie and nontradable goods tor both home and foreign countries. What happens to the relative price of nontradabie goods at home when A,- rises? Let home and foreign rates at inflation be zero. What implication does this have for the real and nominal exchange rates? Explain. (50 marks)Step by Step Solution
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