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Homework answers / question archive / Suppose that Japan (country a) and China (country b) do not have foreign currency controls in effect

Suppose that Japan (country a) and China (country b) do not have foreign currency controls in effect

Economics

Suppose that Japan (country a) and China (country b) do not have foreign currency controls in effect. The total demand for money is always 2,000 goods in Japan and 1,000 goods in China. The fiat money supplies are 100 yen in Japan and 300 yuan in China.

(a) Suppose the exchange rate is 3 and China triples its fiat money stock, while Japan prints no new money. How many goods will China gain in seignorage? What fraction of this seignorage comes from Japanese citizens?

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