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b) Suppose absolute purchasing power parity holds for these countries. For each country, determine the long-run equilibrium levels of: The trade balance; The domestic nominal
b) Suppose absolute purchasing power parity holds for these countries. For each country, determine the long-run equilibrium levels of: The trade balance; The domestic nominal money supply; The real exchange rate (in the usual orientation # of foreign per domestic, creme); The nominal exchange rate (in the usual orientation of # of foreign currency per domestic currency); The domestic real rate of interest; The real wage rate of labour and real rental rate of capital; The unemployment rate; and Output per worker. Support your answer with one set of diagrams, one for the (Country A) loanable lnds market and one for the (Country A) foreign exchange market. Which country has a better standard of living? (11 points) Suppose the government of country A decides to implement a new law that imposes a minimum real wage of 1.75. Redo parts (a) and (b). Explain in words which country has a better standard of living & why. (15 points) Support your answer with one NEW set of diagrams, one for the (Country A) loanable lnds market and one for the (Country A) foreign exchange market. Be sure to label the initial and new long-run equilibrium points and provide an explanation on whether the values of variables of interest change or remain unchanged. Note: There is no need to do any calculation. Written explanation will be sufcient
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