Please give answer according to question and write answer for each equation separately... I'll give you up thumb definitely if you'll do it in 45 minutes 1. Consider the following unified monetary model of the exchange rate where time is discrete and runs from period t = 0 onwards : iUK,t=iUs+e/s,t+1-ef/s,t (1) (2) PUK,t PuS 1 8 n eR [mUK-mUS+yUS-yUK] 1+n 1+n (Po in period t = 0 PUK,t=PuKt-1+(Pnew-Po) in periods1 toT pnew in all later periods (3) (4) where Po = P > 0 is the given initial UK price level. The UK money supply Muk is given and Mus, Yuk, Yus,Pus, n,T are known positive constants. Lowercase versions of variables are natural logarithms (e.g. muk = In(Muk. The home exchange rate in period t is e/s,t, and e/s,t+1 is the expected future exchange rate. We assume MuK is such that the UK interest rate (iuk) is initially equal to the US interest rate. Agents have rational expectations (a) Give a brief economic explanation for equations (1) and (4) [10%]
