Here's the question.

Question 2. Consider two open economies A and B. Assume perfect capital mobility, that the law of one price holds, and that the velocity of money is constant in both economies. The growth rates of real output are gm; = 3% and gyg = 5% in each country. The central bank expands money supply at 9am = 4% in country A and 9MB = 5% in country B. a) Find the rate of ination in each country. (Hint: recall that RY; = vag in country 2' = A, B, where as is the velocity of money, and the rate of ination is m := 1%.) b) Find the rate of expansion of nominal output in each country. (Hint: recall that nominal output is given by nom(Y;:) := REY; in country a" = A, B.) c) How does the nominal exchange rate evolve over time? (Hint: the nominal exchange rate is the value of the currency in country A in terms of the currency in country B.) d) How does the real exchange rate evolve over time