Each nation has its own currency. Americans have the dollar, Italians have the euro, and the British have the pound. So how can they trade?
Answer to relevant QuestionsWhat defines an economic model? In what way is the circular flow model a simplification of reality? Why would economists want to simplify reality? Think about the United States and Japan. Suppose the exchange rate, yen per dollar, falls from 125 yen to 100 yen. How would that affect trade between the United States and Japan? In some cases, a balance of payments problem really isn't a problem at all. Yet in other cases, it could signal a fundamental problem in the economy. Explain. Describe the demographic trap. Professor Miguel Ramirez asks his students at Trinity College to respond to the following problem: "If LDCs cannot generate sufficient capital to engage in development, then perhaps the richer nations of the world can ...
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