Question 1. Describe the monetary approach to exchange rates between a pair of countries, including description of the market involved and the equilibrium conditions that must hold. Why does this approach fail to fully explain exchange rate movements?
Question 2. Explain the difference between open economy and closed economy national income accounting. what is the difference between total savings under these two approaches?
Question 3. What is the theory of purchasing power parity? This theory has been found to fail empirically. Give three reasons, with examples or illustrations, of why this is the case.