Suppose the exchange rate between the Rupee and the dollar was Rs. 30=1$ in the year 2010. Suppose the prices have doubled in India over 20 years while they have remained fixed in USA. What, according to the purchasing power parity theory will be the exchange rate between dollar and rupee in the year 2030.
In a closed economy, savings and investments are equal at equilibrium level of income.
However, in an open economy savings and investments differ.
Y = C + I + G + X - M
Or, Y = C + I + G + NX [As NX = X - M]
Or, Y - C - G = I + NX
Or, S = I + NX
Savings in an economy include private savings (Sp) and government savings (Sg).
So, Sp + Sg - I
Or, NX =Sp+ Sg – I
SP = Y - C - T SR = T - G
Or, NX = (Y - C - T) + (T - G) - I
Or, NX = Y - C - T +T - G - I
Or, NX = Y - C - G - I
Or, G = Y - C - I - NX
Or, G - T = Y - C - I - NX - T [Subtracting T from both sides]
Or, G - T = Y - C - T - I - NX
Or, G - T = (Sp - I) - NX
Or, G - T = (Sg- I) - (X - M) [NX = X - M]
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Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter . This page offers a step-by-step solution to the specific question from Excercise 1 , Question 15: Suppose the exchange rate between the Rupee and the dollar was Rs. 30=1$ in the year 2010. Suppose t....
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