1. Under the Trump administration, imports from the EU were tariffed.How did this action change the long-run real exchange rate between the US and EU?How is the long-run nominal exchange rate affected?Utilize graphs to assist in answering this question.
2. Sticky nominal prices and wages are central to macroeconomic theories, but just why might it be difficult for money prices to change from day to day as market conditions change?Apply this thought process to the following article:Law of One Price in Scandinavian Duty Free Stores
3. Read / Watch the content in the following link:Federal Reserve Decision in March 2021.Using the Real Exchange Rate approach, explain what will happen to the US exchange rate with, say, Mexico.Utilize the domestic market / FX market graph in explaining your reasons.Imagine that the Federal Reserve decides to fight inflation, what will happen to the USD:MXN exchange rates via the domestic market/FX market graph?
4. Why might it be true that relative PPP holds better in the long run than the short run? (Think about how import/export firms might react to large and persistent cross-border differences in the prices of a tradable good.)