Consider two identical countries a and b in our

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Consider two identical countries, aand b, in our standard overlapping generations model. In each country, the population of every generation is 200, and each young person wants money balances worth 40 goods. Assume that the money of country ais the only currency that currently circulates in the two countries. There are $1000 of country amoney split equally among the initial old of both countries. a. Find the value of a country adollar. b. Find the consumption of the initial old. Now, suppose country bissues its own money, giving €12 to each of the initial old of country b. To ensure a demand for its currency, country bimposes foreign-exchange controls. c. Find the value of one euro and the value of one dollar. d. Find the consumption of the initial old in country aand in country b. Who has been made better off by this policy switch?  
Course ID: 105517 Page 4 of 4 Final Page Part C (15 marks) Use a separate bookfor Part C. Answer only ONE questionin this section. If you answer more than one question from this section, only the first question in your examination book will be marked. Do not answer questions on this examination paper. a. Are fixed exchange rates better than floating exchange rates? (15 marks)OR b. Some central banks pay particular attention to money. Why? In practice, what is the role of money in the European Central Bank’s strategy to conduct monetary policy (15 marks).

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