1. West Bubble makes ordinary soap bars that are sold for 5 guilders each. East Bubble makes deluxe soap bars that are sold for 100 florins each. The real ex- change rate between West and East Bubble is two ordinary soap bars per deluxe soap bar. 4. What is the nominal exchange rate between the two countries? E During the following year West Bubble has 10% domestic inflation and East Bubble has 20% do- mestic inflation. Two ordinary soap bars are still traded for a deluxe soap bar. At the end of the year what has happened to the nominal exchange rate? Which country has had a nominal appreciation? Which has had a nominal depreciation?
Answers
Answer:
West Bubble makes ordinary soap bars that are sold for 5 guilders each. East Bubble makes deluxe soap bars that are sold for 100 florins each. The real exchange rate between West and East Bubble is two ordinary soap bars per deluxe soap bar.a)What is the nominal exchange rate between the two countries?
b. During the following year West Bubble has 10% domestic inflation and East Bubble has 20% domestic inflation. Two ordinary soap bars are still traded for a deluxe soap bar. At the end of the year what has happened to the nominal exchange rate? Which country has had a nominal appreciation? Which has had a nominal depreciation?
Step-by-step solution:
Step 1 of 5
Given:
• W. bubble produces ordinary soaps for 5 guilders each
• E. bubble makes deluxe soaps for 100 florins each
• Real exchange rate is 2 ordinary soaps per deluxe soap
Chapter 13, Problem 1NP is
Explanation:
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