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When All Variables Start Out at Their Long-Run Equilibrium Levels

question 5

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When all variables start out at their long-run equilibrium levels, the most important determinants of long-run swings in nominal exchange rates do NOT include


Definitions:

Excess Reserves

Banks' reserves that exceed the minimum requirement set by a central bank, not lent out and often kept for emergency purposes.

Reserve Requirement

The minimum amount of reserves that banks must hold against deposits, as mandated by central banks.

Fractional Reserve

A banking system in which only a fraction of bank deposits are backed by actual cash on hand, with the rest being available for loans.

Banking System

The network of banks and financial institutions that provide financial services to consumers, businesses, and other banks.

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