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4. There are two countries, Home and Foreign, and two goods, tradables and nontradables. Each country's consumption basket is a Cobb-Douglas aggregate over the two goods, with tradables expenditure share y = 1/2: C = (CT)(CN) 1-Y. Output is produced using local labor, L, based on the following technologies: QT = ArL and QN = ANL in Home, and Q? = AL and Q* = ANL in Foreign. Main- tain the usual assumptions: (i) Labor is freely mobile between the two sectors within each country. (ii) Tradable goods are traded freely. Assume that Home has higher productivity than Foreign in tradables with AT = 4AT. (a) Suppose that nontradables productivity is identical between the two countries AN = AN. Solve for the aggregate price level in Home relative to Foreign, pr (b) Suppose that nontradables productivity is identical between the two countries AN = AN. Compute the relative price of nontradables to tradables in Home PN/ PT. relative to Foreign, PN/PF (c) Suppose that in both countries the tradables expenditure share decreases to y = 1/4. Which country experiences a real appreciation? Explain the intuition. (d) Consider the original case with y = 1/2. Now suppose that Home is more pro- ductive than Foreign in nontradables: AN = 4AN. IS PN/ PF PN/PT higher than 1, equal to 1, or less than 1