PS5 - DEPARTMENT OF ECONOMICS FALL 2009 UNIVERSITY OF...

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Unformatted text preview: DEPARTMENT OF ECONOMICS FALL 2009 UNIVERSITY OF CALIFORNIA, BERKELEY ECON 182 Problem Set 5 Due in class on Thursday, October 8 th at the beginning of lecture . Students that show their work and write neatly will be graded favorably. Please write your full name, GSI, and section time on your problem set. 1. The Real Exchange Rate and Terms of Trade Consider a model in which all goods are traded across borders. Domestic consumers spend a share of their spending on home-produced goods and a share 1 on foreign-produced goods. Similarly, Foreign consumers spend a share * of their spending on home-produced goods and a share 1 - * on foreign-produced goods. The price of goods produced at home is denoted P H and the price of goods produced abroad is denoted by P F . Thus, using a Cobb-Douglas utility function, we can write * 1-* where and are the price indices for these tradable goods at home and abroad. are the price indices for these tradable goods at home and abroad....
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This note was uploaded on 02/07/2010 for the course ECON 182 taught by Professor Kasa during the Spring '08 term at University of California, Berkeley.

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PS5 - DEPARTMENT OF ECONOMICS FALL 2009 UNIVERSITY OF...

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