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transmission mechanism


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The ways in which changes in incomes, prices, interest rates, etc. are spread between sectors, regions, or countries. This involves the working of both goods and capital markets, and the relation between them. A boom in industrial countries, for example, affects less developed countries (LDCs) through several channels: higher output increases the volume of LDC exports, and raises commodity prices so that their terms of trade improve, but higher interest rates worsen the balance of payments of indebted countries.

Subjects: Economics.


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