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Classical model of exchange rate which is an important model in macroeconomics deals with exchange rate determination. Classical model of exchange rate determines the exchange rate with the law of one price. This law state that there is only one price for a particular good at a given time. If we use this law of one price in various countries we can obtain PPP i.e. purchasing power parity. According to PPP the domestic price is the product of foreign price and exchange rate. If these concepts of domestic and foreign prices are replaced by price levels classical model of exchange rate can be obtained.
This concept includes study of impact of inflation under fixed exchange rate and flexible exchange rate. It includes the relationship between trade and exchange rate, relation between investment and exchange rate, supply and demand for foreign currency, derivation of Box Mac Index etc. All these concepts are have been explained by The Classical Model of Exchange Rate Homework Help experts at myhomeworkhelp.com.
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