Consider two identical countries, a and b, in ourstandard overlapping generations model. In eachcountry, the population of every generation is 200 andeach young person wants money balances worth 50goods. Assume that the money of country "a" is the onlycurrency that currently circulates in the two countries.There are $800 of country "a" money split equallyamong the initial old of both countries. 1) Find the valueof a country "a" dollar and the consumption of the initialold. 2) Suppose country "b" issues its own money, givig£10 to each of the initial old of country "b". To ensure ademand for this currency, country "b" imposes foreignexchange controls. Find the value of a pound and thevalue of a dollar. Find the consumption of the initial oldin country "a" and in country "b". Who has been madebetter off by this policy switch? This exercise is basedon this book: "Modeling Monetary Economies, 3rdEdition". If you can solve this exercice by using thenotions of this book it would be perfect for me. Thanks.

The objective of the question is to understand the value of currency and consumption in two…

Answered: Consider two identical countries, a and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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argues about the intervention of monetary policy as instruments to promote growth, sustainability and economic stability of a country. (Provide a detailed example).
Suppose that Germany (country a) and France (country b) do not have foreign currency controls in effect. The total demand for money is always 2,000 goods in Germany and 1,000 goods in France. The fiat money supplies are 100 marks in Germany and 300 francs in France. A. Find the value of each country's money if the exchange rate et is 3. Do the same if et =1. Is one exchange rate more likely than the other? Explain. B. Suppose the exchange rate is 3 and France triples its fiat money stock, whereas Germany prints no new money. How many goods will France gain in seigniorge? What fraction of this seigniorge comes from German citizens?
Explain how an increase in the size and frequency of unexpected shifts in a countryâ€™s money demand function affect the level of economic integration necessary for it to optimal for a country to join a currency area.
Lets say there is country A which is more developed like china and country B which is less developed like the Caribbean. What are THREE possible impacts of borrowing money from Country B could have on country A?
Let's suppose the current exchange for Forint (Hungary currency) vs. Kuna (Croatia currency) is: 55.75 Forint/Kuna. Suppose the interest rate on Hungary's government securities with one-year maturity is 3%, and that of Croatia is 2%. According to the International Fisher Effect model, Forint will _____ against the other currency.
Assume the US has constant velocity, constant annual money growth equal to 5% and constant growth in real GDP equal to 3%. Assume Mexico has constant velocity, constant annual money growth equal to 4% and constant growth in real GDP equal to 5%. According to the PPP theory, what should happen annually to the value of the dollar relative to the Mexican peso? Provide a percentage change please.
Many countries around the world have opted to join currency unions. Examples include those in the euro area, the CFA franc union in West Africa, and the Caribbean currency union. This involves sacrificing the domestic currency in favor of using a single currency unit in multiple countries Assuming that once a country joins a currency union, it will not leave, do these countries face the policy trilemma discussed in the text? Explain.
What are THREE possible impacts one country of borrowing money from another country. both negative and positive
Consider a country that fixes the value of its currency to gold. This country can freely conduct domestic monetary policy to respond to unemployment and inflation conditions only if it also imposes controls on capital mobility. True/False. Remember to include your explanation.
Suppose that you hold a piece of land in the city of London that you may want to sell in one year. As a U.S. resident, you are concerned with the dollar value of the land. Assume that if the British economy booms in the future, the land will be worth £2,000, and one British pound will be worth $1.50. If the British economy slows down, on the other hand, the land will be worth less, say, £1,500, but the pound will be stronger, say, $1.60 per pound. You feel that the British economy will experience a boom with a 60 percent probability and a slowdown with a 40 percent probability. Required: Estimate your exposure (b) to the exchange risk. Note: Negative amount should be indicated by a minus sign. Compute the variance of the dollar value of your property that is attributable to exchange rate uncertainty.
The figure to the right shows the market for Kuwait's currency, the dinar. Suppose that the following two events take place in the market for the dinar: The U.S. demand for oil, Kuwait's main export good, declines and market interest rates on financial assets denominated in dinar decrease relative to U.S. interest rates. Moreover, assume that exchange rates are flexible. Using the line drawing tool, show how the market for the dinar is impacted by these events Properly label this line, Carefully follow the instructions above, and only draw the required objects. According to your graph, the dinar has with respect to the dollar. Dollars per Dinar 6.0 5.5 5.0 4.5 4.0 3.5- 3.0 2.5 2.0 1.5- 1.0 0.5- 0.0+ 0 1 2 6 Quantity of Dinars (billions) 8 9 D S 10 Ly
The reason the country of Ecuador has adopted the use of the US dollar for transactions within the country is a. to be able to lower taxes b. to increase government revenues c. to credibly commit to minimize inflationary pressures in the country d. to be able to effectively implement monetary policy

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