Consider two identical countries, a and 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 50 goods. Assume that the money of country "a" is the only currency that currently circulates in the two countries. There are $800 of country "a" money split equally among the initial old of both countries. 1) Find the value of a country "a" dollar and the consumption of the initial old. 2) Suppose country "b" issues its own money, givig £10 to each of the initial old of country "b". To ensure a demand for this currency, country "b" imposes foreign exchange controls. Find the value of a pound and the value of a dollar. Find the consumption of the initial old in country "a" and in country "b". Who has been made better off by this policy switch? This exercise is based on this book: "Modeling Monetary Economies, 3rd Edition". If you can solve this exercice by using the notions of this book it would be perfect for me. Thanks.

Consider two identical countries, a and 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 50 goods. Assume that the money of country "a" is the only currency that currently circulates in the two countries. There are $800 of country "a" money split equally among the initial old of both countries. 1) Find the value of a country "a" dollar and the consumption of the initial old. 2) Suppose country "b" issues its own money, givig £10 to each of the initial old of country "b". To ensure a demand for this currency, country "b" imposes foreign exchange controls. Find the value of a pound and the value of a dollar. Find the consumption of the initial old in country "a" and in country "b". Who has been made better off by this policy switch? This exercise is based on this book: "Modeling Monetary Economies, 3rd Edition". If you can solve this exercice by using the notions of this book it would be perfect for me. Thanks.

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter31: Open-Economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 4PA

See similar textbooks

Similar questions

If a country is running a government budget surplus, why is (T - G) on the left side of the saving-investment identity?
What does it mean to say that a currency appreciates? Depreciates? Becomes stronger? Becomes weaker?
1. When interest rate increases, demand for equity Select one: a. Does not change b. Increase c. Decreases d. None of the above 2. Which macroeconomic fundamentals can influence the stability on the value of currency? a. Balamce of payment b. Exchange rate c. Inflation rate d. Gross domestic product 3. When interest rate increases, what hapoens to exchange rate? a. Decreases b. None of the above c. Does not change d. Increase 4. 1 Sales - cost of good sold = Select one: a. Retained income b. Gross profit c. Operaring cost d. Gross income 5. The financial stability of a country can be seen in a. Inflation b. Balamce of payment c. Gross domestic product d. Exchange rate
a. What is M1 in Ironmania? $ million b. What is M2 in Ironmania? $ million
Show how you arrive at your answer. E.g. to answer the question, “How much is $16 is worth in South African rand?”, if $1 = 15.3332 rand, write out $16 x 15.3332 = 245.3312 rand, or note that 1 rand = US$ 0.0652 and write out $16/0.0652 = 245.3988. What are £25,000 (GBP) worth in US dollars? What are ¥10,000 Japanese yen worth in terms of euros? (Use only figures in the table provided to reach your answer.) In the table, has the Canadian dollar gained or lost value from Wednesday to Thursday, and how can you tell? Suppose the US dollar gains 10% in value against other currencies? Will this help or hinder US exports, and why? (Answer in one sentence.)
In an OLG model with money: Each gen picks 12 banans when young, 0 bananas when old. Central bank prints out 2 units of money, given to gen 0 for free. maxCyCo Cy= 4-vm Co= 0 + vm In equilibrium, 1 money = ______ bananas.
Suppose you obtain the following quotes: Foreign exchange market: Spot rate: SUS$/€ = 1.0623 180-day Forward rate: F180US$/€ = 1.0765 Money market (180-day): RUS$ = 5.75% p.a. R€ = 4.25% p.a. Note: Keep your answers to 4 decimal points if necessary. a) Based on the above information, is there any arbitrage opportunity? If yes, what should the commercial bank do to capture this arbitrage opportunity? If not, why? Explain. b) Suppose the commercial bank has the ability to “move” the market (i.e., affecting the spot exchange rate, the forward exchange rate, and the returns on bonds in both countries), what happens to these variables after the transactions carried in part (a)? Explain. c) Instead of affecting the interest rates and the 180-day forward rate, suppose the spot exchange rate bears all the burden of adjustments, find the US$/€ spot rate that would eliminate interest arbitrage
What are the importace of “IMF” intebrnational monetary fund to the nation of Brazil and Argentina during there recession Lending to Brazil and Argentina did it help in the developing of these nations
1.Would each of the following groups to be happy or unhappy if ringgit appreciated? Explain. A) Hong Kong pension funds holding Malaysian government bonds. B) Malaysian manifacturing industries.C) Australian tourists planning a trip to Malaysia. D) A Malaysian firm trying to purchase property overseas.
1. Somebody has bought US Dollar with one-third of his money and Euro with two-third. Dollar has gained value over national currency by D % each month and Euro E % each month. The average monthly infiation rate is Y. Find the percentage loss of him/her at the end of a year. D=3,2 E=3 Y=1,7
We saw that former Federal Reserve Chairman Ben Bernanke argued thatlow interest rates in the United States during the mid-2000s were due to a globalsavings glut rather than to Federal Reserve policy. In an interview with Albert Huntof Bloomberg Television, Alan Greenspan, who was Federal Reserve Chairman fromAugust 1987 through January 2006, made the following similar argument: Behind the low level of long-term rates: a global savings glut as China,Russia and other emerging market economies earned more money on exportsthan they could easily invest. (a) Use two loanable funds graphs to illustrate Greenspan’s argumentthat a global savings glut caused low interest rates in the United States. Onegraph should illustrate the situation in the United States, and the other graphshould illustrate the situation in the rest of the world.(b) Why should Alan Greenspan care about a debate over the causes oflow interest rates?
• Summarize the advantages and disadvantagesof capital controls