Question 10 Using the data below, calculate both the nominal and real effective exchange rate index...

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Question 10 Using the data below, calculate both the nominal and real effective exchange rate index for Country A in year 1 having set year 0's index equal to 100 in both cases. Construct your indices so a higher number means a less competitive exchange rate. Trade Country A exports to country B $68 mill in year 0 Country A exports to country C $78 mill in year 0 Exchange Rate (number of units to buy 1 unit of country A currency) Exchange rate AB = 200 in year 0, 190 in year 1 Exchange rate AC = 3 in year 0, 2.5 in year 1 Price level Year 0 Country A 106 Country B 100 Country C 102 Year 1 120 97 105 [18 marks] Question 10 Using the data below, calculate both the nominal and real effective exchange rate index for Country A in year 1 having set year 0's index equal to 100 in both cases. Construct your indices so a higher number means a less competitive exchange rate. Trade Country A exports to country B $68 mill in year 0 Country A exports to country C $78 mill in year 0 Exchange Rate (number of units to buy 1 unit of country A currency) Exchange rate AB = 200 in year 0, 190 in year 1 Exchange rate AC = 3 in year 0, 2.5 in year 1 Price level Year 0 Country A 106 Country B 100 Country C 102 Year 1 120 97 105 [18 marks]

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