Consider the following classical economy:

AD Y = 400 + 50 M/P

AS Y = 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 5 wedges of cheese per bottle

of wine. The foreign price level is 20 crowns per

wedge of cheese, and the domestic money supply is

48 francs.

a . What is the domestic price level? What is the fundamental

value of the (nominal) exchange rate?