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2. (Trade Barriers and the Real Exchange Rate) Suppose in countries A and B households consume only cars and spaghetti. Suppose that both goods are
2. (Trade Barriers and the Real Exchange Rate) Suppose in countries A and B households consume only cars and spaghetti. Suppose that both goods are internationally traded. Suppose the price index is of the form Pi=PiCPiS, where Pi,PiC, and PiS denote, respectively, the consumer price index, the price of cars, and the price of spaghetti in country i=A,B. (a) What is the real exchange rate in the absence of trade barriers? (b) What is the real exchange rate if country A imposes a 10 percent import tariff on cars
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