The question mentions that Indonesia decides to maintain capital mobility and fixed exchange rate, so no monetary policy, but then the answer says Indonesia defends the peg by monetary intervention? how is this possible
real wage foreign is just the MPL cars since they are only producing cars: 2.5. For the home country they only produce motos so the wage is the mpl of motos but since we need it in terms of cars we multiply that (5) by the world relative price of motos (0.5) and we get 2.5 also in this case.
11 months ago
How do you find the world relative price of motos ?