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ECMC61 – International Economics: Finance
Chapter 17 – Output and the Exchange Rate in the Short Run
Question 1:
Problems #2. (Short run analysis only)
Question 2:
Problems #4.
Question 3:
Problems #8 (Short run analysis only)
Question 4:
A tax break will increase output and deteriorate the current account in the short
run.
Discuss.
Question 5:
A small open economy can be described by the following equations:
DD equation:
Y = 27900 + G – 800P + 500E
AA equation:
Y = 3000 + 10 + 1000E
e
– 500E
Longrun output level:
Y
FE
= 9K
1/3
L
2/3
Note: Exchange rate is quoted as E
DC/FC
.
Keep your answer to
4 decimal points
.
a)
This economy has 64000 units of capital and 1000 workers.
In addition, the level of
(nominal) money supply is 26250 while the level of government spending is 10% of
the country’s longrun level of output.
Compute the longrun equilibrium values of
DC/FC exchange rate if the expected value of DC (E
e
) is 28 DC per FC.
b)
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This note was uploaded on 12/21/2011 for the course ECONOMICS ECMC61 taught by Professor Dr.irisau during the Fall '11 term at University of Toronto Toronto.
 Fall '11
 Dr.IrisAu
 International Economics

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