Question: Problem 2 (7 marks) Consider the following information: HOME FOREIGN Money growth rate 15% 4% Output growth rate 9% 3% Word interest rate = 1.5%

Problem 2 (7 marks) Consider the following information: HOME FOREIGN Money growth rate 15% 4% Output growth rate 9% 3% Word interest rate = 1.5% F" Calculate the nominal interest rate in Home and Foreign. b. Calculate the expected rate of depreciation in the Home currency relative to the Foreign currency. c. If Home Central Bank increases the money growth rate to 16%, what is the new Home ination rate, ceteris paribus? d. What is the Home money growth rate and Home nominal interest rate that allows Home to maintain a xed exchange rate relative to the Foreign currency

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