Suppose that Japan (country a) and China (country b) do not have foreign currency controls in effect. The total demand for money is always 2,000 goods in Japan and 1,000 goods in China. The fiat money supplies are 100 yen in Japan and 300 yuan in China.

a. Find the value of each countrys money if the exchange rate "E(t)"(as defined in the text) is 3. Do the same if E(t)=1. Is one exchange rate likelier than the other? Explain.

b. Suppose the exchange rate is 3 and China triples its fiat money stock, whereas Japan prints no new money. How many goods will China gain in seigniorage? What fraction of this seigniorage comes from Japanese citizens?