Briefly Describe the Three Elements of a Complete Theory of Exchange

question 151

Essay

Briefly describe the three elements of a complete theory of exchange rate determination. List the variables in each element, and explain whether the theory addresses short-run exchange rate changes or long-run exchange rates.

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Definitions:

Worker

An individual who performs tasks or services for compensation, contributing labor to an economy.

Nonlabor Resources

Inputs used in the production of goods and services that do not involve human labor, such as land, machinery, and materials.

Accounting Profits

The total revenue of a business minus the explicit costs; it is the net income reported on the financial statement.