Answered: real exchange rate.

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Economics

real exchange rate.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter34: International Finance

Section: Chapter Questions

Problem 10QP

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Many attributes might be related to an asset's risk, including market capitalization (size), dividend yield, growth, price-earnings ratio, etc. The use of these traditional descriptors, however, presents a few problems:

Question

C= C₀ + cY_D

Y_D = Y

I = I₀ - br

NX = N₀ - n₁Y + n₂Yf + n₃R

M/P = M₀ + m₀Y - m₁.r

where AD = C + I + G₀ + NX.

What is the impact of M0 and G0 on the equilibrium value of R. That is, discuss the role of
monetary policy and fiscal policy on the real exchange rate.

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Step 1: Definition of real exchange rate:

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Step 2: Impact of M0 on the equilibrium of R:

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Step 3: Impact of G0 on the equilibrium of R:

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Step 4: Role of monetary policy and fiscal policy on real exchange rate:

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