1 Real Exchange Rate Determination in the Balassa-Samuelson Model [30 Marks] Consider two countries, say the United States and Japan. Both countries produce tradables and nontradables. Suppose that at some point in time the production technology in the United States is described by QUs = ay* Lys; with a$5 =0.4 and QVS = aW LN; with an aWS = 0.3 where Q," and Q% denote, respectively, output of tradables and nontradables in the U.S., a- and af denote, respectively, labor productivity in the traded and the nontradable sector, and Lys and LW denote, respectively, the amount of labor employed in the tradable and nontradable sectors in the United States. The total supply of labor in the United States is equal to 1, so that 1 = LYS + LY. At the same point in time, production possibilities in Japan are given by Q7 = 0.20; and ON = 0.3LN. where the superscript / denotes Japan. The total supply of labor in Japan is also equal to 1. Assume that in each country wages in the traded sector equal wages in the nontradable sector. Suppose that the price index in the United States, which we denote by PO'S, is given by pus = /Pys/Py# where Pus and Py" denote, respectively, the dollar prices of tradables and nontradables in the United States. Similarly, the price index in Japan is given by where Japanese prices are expressed in yen