PS6(1) - ECON 352x Macroeconomics for Business Problem set 6(Due date May 1 2015 NAME 1 The Economist reports that a BigMac costs $2.90 in the US $3.28

PS6(1) - ECON 352x Macroeconomics for Business Problem set...

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ECON 352x - Macroeconomics for Business Problem set 6 ( Due date: May 1, 2015) NAME 1. The Economist reports that a BigMac costs $2.90 in the US, $3.28 in the Eurozone, and$2.33 in Japan. (These prices are averages for the various regional markets, expressedin US dollars using current spot exchange rates.) What does this suggest about thelikely change in value of the euro and yen versus the dollar over the coming 6 months(if we were to take the BigMac index seriously)? [HINT: Use the PPP theory] Answer: 2. Suppose that the demand for British Pounds in exchange of Canadian Dollars isQd=75-10eand the supply isQs= 45 + 10e, whereeis the nominal exchange rate(Canadian Dollars to buy one British Pound) andQrepresents the quantity of BritishPounds.(a) Find the values ofNominal exchange rate,e:Quantity of British Pounds traded:Quantity of Canadian Dollars traded:(b) Suppose that the supply of British Pounds changes toQs= 45 + 5e.If theCanadian Central Bank is committed to keep a constant nominal exchangedrate as determined in the previous question, what does it has to do (buy/sellcurrency)? Calculate the quantities involved.
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