Question

A classical economy is described by the equations AD: Y = 1000 + 100M/P AS: Y = 1500 The real exchange rate is 3 bushels/bottle, the domestic nominal money supply is 30 florins, and the foreign price level is 8 crowns/bushel. a. What is the nominal exchange rate? b. If the government wants to maintain an official nominal exchange rate of 6 crowns/florin, what must the nominal money supply be?

Answer 1

Hey Mate !

Solution:

a. 4 crowns/florin.

b. 20 florins.

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