Total demand for money
Course:- Business Management
Reference No.:- EM131258581

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Suppose that Japan (country a) and China (country b) do not have foreign currency controls in effect. The total demand for money is always 2,000 goods in Japanand 1,000 goods in China. The fiat money supplies are 100 yen in Japan and 300 RMBin China.(a) Find the value of each country's money if the exchange rate etis 3. Do the sameif et = 1. Is one exchange rate more likely than the other? Explain.(b) Suppose the exchange rate is 3 and China triples its fiat money stock, whereasJapan prints no new money. How many goods will China gain in seigniorage? What fraction of this seigniorage comes from Japanese citizens?

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