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Assume Russia and the U.S. are the only two countries in the world. Let Russia be the home country and the US the foreign country
Assume Russia and the U.S. are the only two countries in the world. Let Russia be the home country and the US the foreign country and RUBLE/USD is the exchange rate. Suppose the law of one price holds for the traded goods and the share of non-traded goods in price indices is n=0.4 in both countries. Answer the following questions. a) Suppose that there is 4 % growth per year in tradable sector and 1% per year in non-tradable sector in Russia. In the US productivity growth at 2% in both sectors. What is the change in real exchange rate and what happens to Russian Ruble? (5 points)
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