11. Imagine that there are two economies in the world:

Bostonia and New Yorkland. Bostonia’s currency is the sock and New Yorkland’s is the yank. Despite the longstanding rivalry between their citizens, Bostonia and New Yorkland are trading partners.

a. The Central Bank of New Yorkland decides to conduct contractionary monetary policy. Explain the short-run effect, if any, on the following:

i. The sock/yank nominal exchange rate ii. New Yorkland’s net exports iii. Bostonia’s net exports

b. GDP in New Yorkland recently plummeted. At first, the citizens in Bostonia cheered, happy to see their rivals taken down a notch. But then an economist (always a killjoy) asserts that the fall in New Yorkland’s GDP is likely to hurt Bostonia’s GDP in the short run. Could the economist be correct? Why or why not?