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Past Exam Paper A03Q5(ii)

C

Catrina

Member
In the above question the old currency = 2.5 new currency. The past exam paper report suggests that the new surplus must then = 2.5 of the old surplus. Can somebody please explain to me why there is an inverse relationship between currency and surplus? I would have thought that if the old currency was stronger then the old surplus is the greater one?
 
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Just in case this confuses anyone else also: Anna (tutor) has confirmed that U(t) = 2.5 Ữ(t) and therefore Ữ(t) = 0.4 U(t). So the examiner's report is wrong to suggest Ữ(t) = 2.5 U(t).
 
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