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KEY QUESTION) Consider the open economy graphical model. a. Which two markets are analysed together to determine the exchange rate and the trade balance? What
KEY QUESTION) Consider the open economy graphical model. a. Which two markets are analysed together to determine the exchange rate and the trade balance? What variable links these two markets and how? Do the models use nominal or real rates? Why? Now suppose a country removes an import tariff. Answer the following questions and show them in a diagram. (note that this is just the opposite of the situation discussed in the lecture and textbook)
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