Question 1:
1. Write down the definition of the real exchange rate for a pair of two countries, e.g. EUR and
QAR. Then express the nominal exchange rate between the rial and the euro as a function of the
price level in Qatar, European Union and the real exchange rate.
2. Qatar imposes a tariff on imports from the European Union (assume all goods are final).
Assume the world economy is consisted by these two countries. How does this policy change the
relative supply of goods in the long run, how does it affect the relative demand of foreign goods
in Qatar.
3. Explain then, using a graph of relative demand and supply, how the long-run real exchange
rate between the home and foreign currencies affected. How is the long-run nominal exchange
rate affected?.
Question 11. Write down the definition of the real exchange rate .pdf
1. Question 1:
1. Write down the definition of the real exchange rate for a pair of two countries, e.g. EUR and
QAR. Then express the nominal exchange rate between the rial and the euro as a function of the
price level in Qatar, European Union and the real exchange rate.
2. Qatar imposes a tariff on imports from the European Union (assume all goods are final).
Assume the world economy is consisted by these two countries. How does this policy change the
relative supply of goods in the long run, how does it affect the relative demand of foreign goods
in Qatar.
3. Explain then, using a graph of relative demand and supply, how the long-run real exchange
rate between the home and foreign currencies affected. How is the long-run nominal exchange
rate affected?
