Consider two countries, A and B. In 2020, Country A experienced a real output growth of...

 

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Consider two countries, A and B. In 2020, Country A experienced a real output growth of 3% per year, whereas Country B had a real output growth of 4% per year. Suppose the central bank of Country A allowed the money supply to grow by 6% each year, and the central bank of Country B chose to maintain the money growth rate of 6% per year. The annual nominal interest rate in country A is 6%. Use the general monetary model (where L depends on the interest rate of the country) and the purchasing power parity. Treat Country A as the home country and Country B as the foreign country. (a) The depreciation (not appreciation) rate of country A's currency against country B's currency, E(A/B), (rounding to zero decimal places) is 1 mark) percent. (1 mark) (b) The annual nominal interest rate in country B, i(B), (rounding to zero decimal places) is Now, suppose that the real income growth rate in country A falls to 1% per year permanently today (at time T). Then: (c) the real money balance in country A, M(A)/P(A), mark) → at time T. After that, the real money balance (d) the price level in country A, P(A), → at time T. After that, the price level (e) the exchange rate of country A's currency against country B's currency, E(A/B), (2 mark) → (2 mark) at time T. After that, the exchange rate percent. (1 (2 Consider two countries, A and B. In 2020, Country A experienced a real output growth of 3% per year, whereas Country B had a real output growth of 4% per year. Suppose the central bank of Country A allowed the money supply to grow by 6% each year, and the central bank of Country B chose to maintain the money growth rate of 6% per year. The annual nominal interest rate in country A is 6%. Use the general monetary model (where L depends on the interest rate of the country) and the purchasing power parity. Treat Country A as the home country and Country B as the foreign country. (a) The depreciation (not appreciation) rate of country A's currency against country B's currency, E(A/B), (rounding to zero decimal places) is 1 mark) percent. (1 mark) (b) The annual nominal interest rate in country B, i(B), (rounding to zero decimal places) is Now, suppose that the real income growth rate in country A falls to 1% per year permanently today (at time T). Then: (c) the real money balance in country A, M(A)/P(A), mark) → at time T. After that, the real money balance (d) the price level in country A, P(A), → at time T. After that, the price level (e) the exchange rate of country A's currency against country B's currency, E(A/B), (2 mark) → (2 mark) at time T. After that, the exchange rate percent. (1 (2

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a The depreciation rate of Country As currency against Country Bs currency EAB is given by the difference in their inflation rates EAB 1 B1 A 1 where ... View the full answer