Give written answer with explanation and conclusion During 1989 a wave of political change swept over Eastern Europe, raising prospects not only of democracy but also of a shift from centrally planned to market economies. One consequence might be a shift in how Western Europe uses money: Nations, especially Germany, that during the 1989s were lending heavily to the United States might start to lend to nearby Eastern European nations instead. Using the analysis of the transfer problem, how do you think this should affect the prices of Western European goods relative to those from the United States and Japan? (Hint: how would the likely use of a dollar of financial resources differ in, say East Germany, from its use in the United States?)
Give written answer with explanation and conclusion
During 1989 a wave of political change swept over Eastern Europe, raising prospects not only of democracy but also of a shift from centrally planned to market economies. One consequence might be a shift in how Western Europe uses money: Nations, especially Germany, that during the 1989s were lending heavily to the United States might start to lend to nearby Eastern European nations instead. Using the analysis of the transfer problem, how do you think this should affect the prices of Western European goods relative to those from the United States and Japan? (Hint: how would the likely use of a dollar of financial resources differ in, say East Germany, from its use in the United States?)
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