1.Find the value of k for each nation (fraction of nominal income held as money)

2. Determine the equilibrium spot exchange rate between the two nations. Express the spot exchange rate in terms of the other currency.

3.Holding k for both nations constant (exogenous), now determine the spot exchange rate if you decrease the money supply of country A by 5%. What can you conclude?

4.Holding k for both nations constant, determine the spot rate if you simultaneously decrease the money supply of country A by 10% and decrease the Money supply of country B by 14%. What can you conclude

\begin{tabular}{|l|lc|c|} \hline \multicolumn{1}{|c|}{ Country } & & A & B \\ \hline & & Japan & India \\ \hline Nominal Income & z & 2,050,000.00 & 815,000.00 \\ \hline Real Income & z & 945,000.00 & 600,000.00 \\ \hline Money supply & 7 & 800,000.00 & 514,000.00 \\ \hline \end{tabular} \begin{tabular}{|l|lc|c|} \hline \multicolumn{1}{|c|}{ Country } & & A & B \\ \hline & & Japan & India \\ \hline Nominal Income & z & 2,050,000.00 & 815,000.00 \\ \hline Real Income & z & 945,000.00 & 600,000.00 \\ \hline Money supply & 7 & 800,000.00 & 514,000.00 \\ \hline \end{tabular}