Question: 1.Explain the short and long run interaction between the exchange rate and inflation rate. 2.According to theory it is expected that real depreciation of domestic

1.Explain the short and long run interaction between the exchange rate and inflation rate.

2.According to theory it is expected that real depreciation of domestic currency improves the trade balance. On the other hand under the some conditions there are some negative effects of the currency depreciation especially for developing countries, discuss them.

3.Although depreciation of Turkish Lira helped to improve trade balance throughan increase in export in 2001 recession we could not see a similar effect of depreciated currency in 2008 recession.Please discuss its reasons.

4.Set the investment-savings balance in open economy. What is the advantages and (actual or potential) disadvanteges of investment financing by external savings.

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