Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can you please only solve the last part of the question M ? Thank you Consider the following classical economy: AD: Y = 420 +

image text in transcribed

Can you please only solve the last part of the question M ? Thank you

image text in transcribed
Consider the following classical economy: AD: Y = 420 + 50 M/P. AS: Y = 1000. This economy produces only wine, its output is measured in terms of wine, and its currency is francs. It trades with a country that produces only cheese, and the currency of that country is crowns. The real exchange rate, e, equals 4 wedges of cheese per bottle of wine. The foreign price level is 24 crowns per wedge of cheese, and the domestic money supply is 40 francs. a. What is the domestic price level? P = 3.448 (enter both responses rounded to three decimal places). What is the fundamental value of the (nominal) exchange rate? enom = 27.842 b. Suppose that the domestic country fixes its exchange rate at 50 crowns per franc. Is its currency overvalued, undervalued, or neither? O A. impossible to determine. B. neither overvalued nor undervalued. C. overvalued. O D. undervalued. c. If the domestic country fixes its exchange rate at 50 crowns per franc, what will happen to the domestic central bank's stock of official reserve assets if it maintains the exchange rate at 50 crowns per franc? O A. The domestic central bank will gain reserve assets over time. O B. The domestic central bank will neither gain nor lose reserve assets over time. O C. Impossible to determine. D. The domestic central bank will lose reserve assets over time. d. Suppose that the domestic country wants a money supply level that equalizes the fundamental value of the exchange rate and the fixed rate of 50 crowns per franc. What level of the domestic mon supply achieves this goal? (Hint: For the given real exchange rate and foreign price level, what domestic price level is consistent with the official rate? What domestic money supply level will yield this price level?) M = (enter your response rounded to three decimal places)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction to Global Business Understanding the International Environment & Global Business Functi

Authors: Julian Gaspar, James Kolari, Richard Hise, Leonard Bierman, L. Smith, Antonio Arreola Risa

2nd edition

1305501187, 9780547152127, 547152124, 9781111824259, 1111824258, 978-1305501188

More Books

Students also viewed these Economics questions