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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. 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?
Expert Solution
The Fiat cash load of China is increments by the 300 RMB. Along these lines, by this China will acquire the inexact 33 (1000/300) merchandise in Seigniorge in light of the fact that the interest of the great is 1000 products in China.
In Japan the fiat cash supplies will be 100 yen and this is same as 300 RMB So, this is the part from Japanese residents will be half if all Japanese individuals or residents by Chinese products.
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