Question $1(28$ marks total$)$

Consider the economies of three countries, $A,B,$ and $C.$ Their currencies are $${?}_A,$$${?}_B,$ and $${?}_C$ respectively. Country A trades with its two neighboring countries B and C$.$ The nominal exchange rates among their currencies currently are:

$1$$${?}_A=4$$${?}_B$

$1$$${?}_A=200$$$S$

$1$$${?}_B=100$$$c$

Steak Burgers are produced and consumed in all three countries. One Steak Burger costs $$A2$ in Country $A,$$${?}_{B}16$ in Country B$,$ and $$C600$ in Country C$.$ Answer the following questions based on information provided above:

a$)$ From Country A$\text{'}$s perspective, calculate the real exchange rate of Steak Burger between Countries A and B$.$ Explain in words what the number you calculated means. $(4$ marks$)$

b$)$ Explain whether the purchasing power parity $($PPP$)$ is satisfied by the current nominal exchange rate between $${?}_A$ and $${?}_B$ so far as the Steak Burger is concerned. If your answer is no$,$ give two possible reasons as to why the PPP is not satisfied.

$(4$ marks$)$

c$)$ In your prediction, how will the nominal exchange rate between $${?}_A$ and $${?}_B$ change in the future? Explain, assuming that the Steak Burger is the only final good produced and consumed in Countries A and B$.$

$(3$ marks$)$

d$)$ How would your answer to c$)$ be different if Steak Burger is only one out of thousands of final goods produced and consumed in Countries A and B$?$ Explain.

$(3$ marks$)$

e$)$ Suppose next year that the real output in Countries A and B will grow $8\%$ and $12\%$ respectively, and the money supply in Countries A and B will increase by $10\%$ and $30\%$ respectively. Give your best estimate of the nominal exchange rate between $${?}_A$ and $${?}_B$ next year. Explain and show calculations.

$(5$ marks$)$

f$)$ As you can judge from information given, is it possible that all the three economies, of Countries A$,$ B$,$ and C$,$ are open economies currently? Explain.

$(3$ marks$)$

g$)$ About Country C$,$ suppose the country's investment in foreign assets totaled $$C2,500$ billion and $$C2,700$ billion at the beginning and the end of this year respectively, and that the foreign countries' investment in Country C$\text{'}$s assets totaled $$C3,200$ billion and $$C3,150$ billion at the beginning and end of this year respectively. Calculate the net capital outflow and net export of Country $C$ for this year.

$(6$ marks$)$