Demand for imports is often price inelastic in the short term. Over time, demand tends to become more price elastic.
What does this help to explain?
why a fall in the exchange rate causes a deficit on the current account of the balance of payments to increase before decreasing
2 )
why a fall in the exchange rate causes inflation to rise before falling
3 )
why a rise in the exchange rate causes a surplus on the current account of the balance of payments to decrease before increasing
4 )
why a rise in the exchange rate causes the terms of trade to worsen before improving
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