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1. There are two countries trading. The one (A) devalues by 25%, while in A and...

1. There are two countries trading. The one (A) devalues by 25%, while in A and B their wages go up 25%. Talk on the issues of standard of living in the two countries, as well as competitiveness. Secondly, would your answers differ, if in the case of country A there is no 25% devaluation but a 25% productivity increase and a commensurate price decrease?

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Answer #1

Trading between two countries:

Devaluation of productivity in two countries to the labour will effect the business in the market.Directly it effects on the profit on the company.If we discuss the issues and the reasons for devaluation between the countries, it will matters a lot in the product exchange and barriers between the trading.If the labour wages increases on productivity, ultimately labour can produce maximum products which leads to huge supply between the two countries.

If there is no devaluation, ultimately production increases in quantity and also labour hours will increase with effectively, then definitely labour will get the actual wages without production loss and it helps to produce heavy production.

We can analyse the living standard and the competitiveness between the countries and produce the product accordingly

If we follow the strategy production will increase and there will be no devaluation further.Labour will get good wages as compared to previous.It helps in good profits to the company.

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