Use the following information for yet another fictional country, Country 1, plus any additional information I provide you, to do this problem:
–Country 1's domestic currency unit is the Uno: (U)
--Country 1's Real Exchange Rate is currently equal to 12
--Country 1's Price Level is currently equal to 200
–The Price Level in the ROW is currently equal to 125
A. How many Uno’s does it currently take to purchase 1 unit of FX in Country 1's FX market?
*Information: Suppose that the following three events take place:
< Country 1's Nominal Exchange Rate becomes 20
< The ROW Price Level rises to 130
< Country 1's Price Level rises to 260
B. Has the Uno appreciated or depreciated?
C. Has Country 1 experienced inflation or deflation?
D. What is the new value of Country 1's real exchange rate (R)? Show your calculations to obtain full credit.
E. As a result of this change in Country 1's real exchange rate, Country 1's
1. Exports (X) of goods & services will (choose one) RISE/ FALL / STAY THE SAME
2. Imports (M) of goods & services will (choose one) RISE/ FALL / STAY THE SAME
3. Net Exports of goods & services (X-M) will (choose one) RISE / FALL / STAY THE SAME
4. Current Account (CA) will (choose one) RISE / FALL / STAY THE SAME