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Application of Four-Rate Formula and Exchange Rate Formula to demonstration of single currency with different value and interest rate

Listed author(s):
  • Xiaozhong Zhai

Putting the theory of price system on the relationship among price, wage, labor time, interest rate and GNP (or GDP), four main variables in economics, Four-Rate Formula and Exchange Rate Formula are created (Xiaozhong Zhai 2003). Two formulas applying to analyses of economy and calculation can show some valuable data to macroeconomics, economist and policymaker. They can produce a proof to demonstrate that single currency, for example, single European currency with different value and interest rate in different conditions and regions, can not certainly benefit price stability, sound public finances, low interest rates, incentives for growth, investment and employment. Two formulas are very simple, practical and easy to deal with the complex phenomenon in economy. Exchange Rate Formula has an immediate signification in the international trade economy.

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Paper provided by EconWPA in its series Macroeconomics with number 0410007.

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Length: 7 pages
Date of creation: 23 Oct 2004
Handle: RePEc:wpa:wuwpma:0410007
Note: Type of Document - pdf; pages: 7. Four-Rates Formula and Exchange Rate Formula are very good for practice, because they can give a conclusive data evidence.Even though the Four-Rates Formula is not 100% accurate (because the change in GNP and interest rate do not in 100% represent production and exchange efficiency respectively), its advantages well outweigh its shortcoming. Considering the complexity of a country¡¯s economy, Four-Rate Formula that is such a small that can let us understand the main issue in the macroeconomics is inspiring and worth reading. Politic leader and economic plan-maker can very easily use this formula in guiding their economic policy.
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