Microeconomics (13th Edition)
13th Edition
ISBN: 9780134744476
Author: Michael Parkin
Publisher: PEARSON
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Chapter 5, Problem 21APA
(a)
To determine
Identify the efficiency and inefficiency in the market.
(b)
To determine
Identify the efficiency and inefficiency in a competitive market.
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This question examines the relationship between the Indian rupee (Rs) and the US dollar ($). We
denote the exchange rate in rupees per dollar as ERS/$. Suppose the Bank of India permanently
decreases its money supply by 4%.
1. First, consider the effect in the long run. Using the following equation, explain how the change
in India's money supply affects the Indian price level, PIN, and the exchange rate, ERS/$:
AERS/STIN
ERS/$
-
·TUS = (MIN - 9IN) - (Mus - gus).
MIN
2. How does the decrease in India's money supply affect the real money supply,
in the long
PIN
run.
3. Based on your previous answer, how does the decrease in the Indian money supply affect the
nominal interest rate, UN, in the long run? (hint: M = L(i)Y hold in the long run)
4. Illustrate the graphs to show how a permanent decrease in India's money supply affects India's
money and FX markets in the long run. (hint: you may refer to the figures on lecture slides #5,
titled "Analysis in the long run.")
5. Illustrate the…
Chapter 5 Solutions
Microeconomics (13th Edition)
Ch. 5.1 - Prob. 1RQCh. 5.1 - Prob. 2RQCh. 5.1 - Prob. 3RQCh. 5.1 - Prob. 4RQCh. 5.2 - Prob. 1RQCh. 5.2 - Prob. 2RQCh. 5.2 - Prob. 3RQCh. 5.2 - Prob. 4RQCh. 5.2 - Prob. 5RQCh. 5.2 - Prob. 6RQ
Ch. 5.3 - Prob. 1RQCh. 5.3 - Prob. 2RQCh. 5.3 - Prob. 3RQCh. 5.4 - Prob. 1RQCh. 5.4 - Prob. 2RQCh. 5.4 - Prob. 3RQCh. 5.4 - Prob. 4RQCh. 5 - Prob. 1SPACh. 5 - Prob. 2SPACh. 5 - Prob. 3SPACh. 5 - Prob. 4SPACh. 5 - Prob. 5SPACh. 5 - Prob. 6SPACh. 5 - Prob. 7SPACh. 5 - Prob. 8SPACh. 5 - Prob. 9SPACh. 5 - Prob. 10SPACh. 5 - Prob. 11APACh. 5 - Prob. 12APACh. 5 - Prob. 13APACh. 5 - Prob. 14APACh. 5 - Prob. 15APACh. 5 - Prob. 16APACh. 5 - Prob. 17APACh. 5 - Prob. 18APACh. 5 - Prob. 19APACh. 5 - Prob. 20APACh. 5 - Prob. 21APACh. 5 - Prob. 22APACh. 5 - Prob. 23APACh. 5 - Prob. 24APACh. 5 - Prob. 25APACh. 5 - Prob. 26APACh. 5 - Prob. 27APA
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