9. Thailand and Taiwan are both rapidly growing Asian economies that trade actively with other countries.

a. Suppose a computer circuit board is the only good produced in Thailand and Taiwan. The circuit board costs 100 baht in Thailand and 200 NT (New Taiwan dollars)

in Taiwan. The nominal exchange rate is 2 NT per baht.

Calculate the real exchange rate from Thailand’s perspective

(that is, using Thailand as the domestic economy, so the nominal exchange rate is 2 NT per baht). Show your work. Intuitively, what does this number represent?

b. The Taiwanese current account with the rest of the world is initially balanced—in other words, it is running neither a deficit nor a surplus. Taiwan alone experiences an economic boom and its real interest rate rises at the same time. Explain the mechanisms by which the Taiwanese current account is affected by its boom and the increase in its real interest rate.

c. Assume that the change in the value of the NT-perbaht exchange rate was 50 percent, which, depending on your answer in part (b), was either appreciation or depreciation. What is the current nominal exchange rate expressed in NT per baht? Show your work.