Consider the zero capital mobility framework. If the economy is in long-run equilibrium, determine the equilibrium price of domestic goods as a function of the exchange rate, foreign prices, and full-employment income. Determine also the economy's equilibrium interest rate.

Consider the zero capital mobility framework. If the economy is in long-run equilibrium, determine the equilibrium price of domestic goods as a function of the exchange rate, foreign prices, and full-employment income. Determine also the economy's equilibrium interest rate.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 6CQ

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Question

Consider the zero capital mobility framework. If the economy is in long-run
equilibrium, determine the equilibrium price of domestic goods as a function of the
exchange rate, foreign prices, and full-employment income. Determine also the
economy's equilibrium interest rate.

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