A Classical Economy Is Described by the Equations
AD: Y $\bar{\gamma}$

question 34

Essay

A classical economy is described by the equations
AD: Y = 1000 + 100M/P
AS: $\bar{\gamma}$ = 1500
The real exchange rate is 3 bushels/bottle,the domestic nominal money supply is 30 florins,and the foreign price level is 8 crowns/bushel.
(a)What is the nominal exchange rate?
(b)If the government wants to maintain an official nominal exchange rate of 6 crowns/florin,what must the nominal money supply be?

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