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ECON 2450
Sharif Khan

ECON 2450 Department of Economics Intermediate Macroeconomic Theory II York University Instructor: Sharif F. Khan Summer 2 2013 Assignment 2 (OPTIONAL) Total Marks: 25 Read each part of the question very carefully. Show all the steps of your calculations to get full marks. B1. (5 marks) Consider two hypothetical countries: Home and Foreign. Home makes ordinary soap bars that are sold for 5 dollars each. Foreign makes deluxe soap bars that are sold for 100 yens each. The real exchange rate between Home and Foreign is a half of the deluxe soap bar per ordinary soap bar. (i) What is the nominal exchange rate between the Home dollar and the Foreign yen? (ii) During the following year, Home has 10% domestic inflation and Foreign has 20% domestic inflation. The real exchange rate remains unchanged. At the end of the year, what has happened to the nominal exchange rate? Which country has had a nominal appreciation? Which has a nominal depreciation? Page 1 of 2 Pages B2. (20 marks) Consider the following Keynesian small open economy: d Desired Consumption: C = 200+0.6 Y −T −200r Desired Investment: I = 300−300r Government Purchases: G =152 Taxes: T = 20+ 0.2Y Net Exports: NX =170 −0.08Y − 0.5e Real exch
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