Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Manuben
![2. (Behavior of currency substitution ratio under real shocks) Consider the model of section
15.2 for the following preferences:
1.0 a,[log (c,) + log(m,) + log(fi)] exp(-Bt)dt.
Solve for a PFEP along which at increases at time T under both predetermined and flexible
exchange rates.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb118157e-b74a-4ce3-8c5b-5d72e545d5f9%2Fe14af689-0840-4c15-a36b-f91129e4cf30%2Flq0iwj8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. (Behavior of currency substitution ratio under real shocks) Consider the model of section
15.2 for the following preferences:
1.0 a,[log (c,) + log(m,) + log(fi)] exp(-Bt)dt.
Solve for a PFEP along which at increases at time T under both predetermined and flexible
exchange rates.
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