Question

I need step by step solution to the following this question asap .I have limited time so please do it quickly with detailed explanation

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a. Explain how the nominal exchange rate is determined according to the monetary approach to the exchange rate. (5 points) b. Consider a household living for two periods. The intertemporal budget constraint is given by C2 ay 11 +r C1 + = y1+ Y2 1+r' where c is consumption, y is income and r is the interest rate. The household's preferences are characterised by the utility function U(C1,C2) = In ci + ß In C2, where ß < 1 is the discount factor. Derive the Euler equation. (5 points) c. Consider the bathtub model of unemployment. Let L denote the constant labour force, let E denote employment and let U denote unemployment. The job-finding rate is denoted f and that the job-separation rate is denoted s. Derive an expression for the unemployment rate. (5 points)

Answer 1

. a. According to the monetary approach of exchange rate, the nominal exchange rate in determined through the relative money demand and supply of two countries. Money demand in ith country: A ma kipili in A,B money supply in ith country mi= mi At money market equilibrium: MikiPY; :: Pi - mi .PR = MB KBY B and Nominal exchange rate betwee AB: МА KAYA KAYA ke Yв kata EXIB - . MB Ma PE KBYB МА MB KAYA kg YB

Utility: umat ßmca Budget: ari no yote ya Equilibrium : MU() Mu(2) Emer's Equation : 1. C2 = B(+r) al C. Total labor force : : Etu Job finding rate :f . Job separation is u unemployment rate :u= ī Total new unemployed each period: SE employed a n :fu At steady state: se = fu ar, s(l-u)=fu C, SL - suo fu cv, SL = (f+s) u .