section+18 - 13 CHAPTER The Open Economy Revisited The...

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ECON 101B: Section 18 Handout Date: 03/18/2011 Question 1 Business executives and policymakers are often concerned about the competitiveness of American industry 1. How would a change in the nominal exchange rate a/ect competitiveness in the short run when prices are sticky? 2. Suppose you wanted to make domestic industries more competitive but did not want to alter aggregate should you pursue? Question 2 Suppose that the price level relevant for money demand includes the price of imported goods and that the price of imported goods depends on the exchange rate. That is, the money market is described by M P = L ( r; Y ) ; where P = d + (1 ) P f e : The parameter is the share of domestic goods in the price index P . Assume that the price of domestic goods P d and the price of foreign goods measured in foreign currency
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section+18 - 13 CHAPTER The Open Economy Revisited The...

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