Find the market equilibrium value, Macroeconomics

Frovea's currency is called the fromark, and Olympia's currency is called the olymark. In the market in which fromarks and olymarks are traded for each other, the supply of and demand for fromarks are given by

Demand = 26,000 - 5,000e + 40,000( F O r - r ),

Supply = 19,500 + 8,000e - 40,000( F O r - r ).

The nominal exchange rate e is measured as olymarks per fromarks, and F r and O r are the real interest rates prevailing in Frovea and Olympia, respectively.

a. Initially, = = 0.10

F O r r , or 10 %. Find the market equilibrium value of the framark.

b. The Olympian central bank grows concerned about inflation and raises Olympia's real interest rate to 13 percent. What happens to the market equilibrium value of the fromarks?

c. Assume that the exchange rate is flexible and the Frovia does not change its real interest rate following the increase in Olypia's real interest rate. Is the action of the Olympian central bank likely to increase or reduce aggregates demand in Frovea? Discuss.

 

Posted Date: 3/13/2013 2:27:11 AM | Location : United States







Related Discussions:- Find the market equilibrium value, Assignment Help, Ask Question on Find the market equilibrium value, Get Answer, Expert's Help, Find the market equilibrium value Discussions

Write discussion on Find the market equilibrium value
Your posts are moderated
Related Questions
Long-Run Labor Demand: Graph an increase in the wage when only labor is a 'normal' input to production. Graph an increase in the wage when both inputs are 'normal'

i have an assignment i need it to be done by thursday march the 10th before midnight

What does the United States do better than other countries?

explain the terms abnormal profits and normal profits

explain the neo-classical theory of trade and show the difference between this and the classical approach, as wellas the similarities

America can produce 100 shirts or 20 computers and China can produce 100 shirts or 10 computers. With trade, who exports shirts? Which country benefits from the trade?

A recent article in the Cincinnati Enquirer reported that the mean labor cost to repair a heat pump is $90 with a standard deviation of $22. Montes plumbing and Heating Service com

Use the points on the graph below to answer the following questions. i)   What is Ep along D1 (from A to B)? ii)  What is the Ep along D2 (from X to Y)? iii) What are

Q. Explain about Household savings? Remember that consumption may refer to observed consumption as well as to demand for consumption. The same is true for 'household savings',

derive the isoprofit functin