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In the Dornbusch-Fischer-Samuelson model, both countries (a and b) are assumed to have identical demand patterns. Suppose that tastes shift so that consumers everywhere now
In the Dornbusch-Fischer-Samuelson model, both countries (a and b) are assumed to have
identical demand patterns. Suppose that tastes shift so that consumers everywhere now want
to buy relatively more of the goods from that range of goods in which country a has a
comparative advantage. Explain what happens to the ratio of wages in the two countries and to
the range of goods produced in the two countries. What is the role of the assumption of full
employment in this?
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