1 answer

Suppose the world real interest rate is r* = 3%, the gdp growth rates in the...

Question:

Suppose the world real interest rate is r* = 3%, the gdp growth rates in the US and the foreign country are 6%, US monetary growth is μUS = 10%, and foreign monetary growth is μFC = 50%. Find inflation rates in both countries, πUS and πFC, nominal interest rates in both countries, iUS and iFC, and the rate of change in the foreign currency value of the $, ΔE/E. Assume the money demand parameter L is constant in both countries, expected inflation equals actual inflation, exchange rates are determined by purchasing power parity, and interest parity holds.


Answers

THU JANUARY 2017 solution - Gulen . For us, Real interest rale = 37. e gap growth rate = 6%. uus, monetary growth. WK 01 (005WK01 (007-358) | SAT 1) For foreign JANUARY 2017 u 07 Here, we will assume we will assume velocity to le constant Formula % M

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