At time t = 0, the initial log values of the variables L, Y, and M...
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At time t = 0, the initial log values of the variables L, Y, and M are: Table 1 Inl InY InM 9t Australia 1 1 What's more, the continuous growth rate of real income g, and of the money supply μ, are: Ma P 2 In Table 2 Australia .03 .05 USA 1 3 3 Assume that households care about the opportunity cost of holding money, so that the demand for real money balances in both the U.S.A. and Australia is now given by: =1-21+ InY USA .02 .03 Where i= In (1 + i) is the log nominal interest rate. Prices are still fully flexible. For the values of Y, M, 9₁, and μ, in Tables 1 and 2, calculate: a) The nominal interest rate in Australia and the U.S.A. (in log terms) if the log world real interest rate ln(1 + r) = 0.02 and real interest parity holds. b) The equilibrium natural log price levels InP in Australia and the U.S.A. for t = 0; e) The log of the equilibrium exchange rate InSAUD/USD for t= 0; and f) The log of the equilibrium exchange rate InSAUD/USD for t = 1. c) The equilibrium natural log price levels InP in Australia and the U.S.A. for t = 1; d) The equilibrium natural log real money balances In- in Australia and the U.S.A. for t = 0; At time t = 0, the initial log values of the variables L, Y, and M are: Table 1 Inl InY InM 9t Australia 1 1 What's more, the continuous growth rate of real income g, and of the money supply μ, are: Ma P 2 In Table 2 Australia .03 .05 USA 1 3 3 Assume that households care about the opportunity cost of holding money, so that the demand for real money balances in both the U.S.A. and Australia is now given by: =1-21+ InY USA .02 .03 Where i= In (1 + i) is the log nominal interest rate. Prices are still fully flexible. For the values of Y, M, 9₁, and μ, in Tables 1 and 2, calculate: a) The nominal interest rate in Australia and the U.S.A. (in log terms) if the log world real interest rate ln(1 + r) = 0.02 and real interest parity holds. b) The equilibrium natural log price levels InP in Australia and the U.S.A. for t = 0; e) The log of the equilibrium exchange rate InSAUD/USD for t= 0; and f) The log of the equilibrium exchange rate InSAUD/USD for t = 1. c) The equilibrium natural log price levels InP in Australia and the U.S.A. for t = 1; d) The equilibrium natural log real money balances In- in Australia and the U.S.A. for t = 0;
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Related Book For
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett
Posted Date:
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