Question 1 1 pts Choose the correct statement. The nominal exchange rate measures the relative price of currencies while the real exchange rate measures the relative prices of (baskets of) goods The nominal exchange rate measures the number of domestic goods needed to purchase one foreign good whereas the real exchange rate is the units of domestic currency needed to buy a unit of foreign currency The nominal exchange rate fluctuates while the real exchange rate never changes The real exchange rate is the inverse of the nominal exchange rate Question 2 1 pts Home's currency is the dollar and Foreign's currency is the peso. In a long-run equilibrium Home's money supply grows at 7% and Foreign's money supply grows at 5. In the long run, home's nominal interest rate is higher than foreign's by 4 percentage points In the long run, home's nominal interest rate is equal to foreign's interest rate The difference in money supply growth has no bearing on inflation Price inflation in the foreign country is lower than inflation in the home country Question 3 1 pts Suppose the monetary authorities of a country choose the nominal exchange rate as their anchor. Specifically, they want to target an annual depreciation rate of 1% of their domestic currency against the US $. If the long-run annual nominal interest rate in the US is 5%, what would the long-run domestic interest rate in this country be? (report the percentage number, for example if you find 95%, write down '95') Question 4 1 pts Trade in goods and in assets is completely free. In a long-run equilibrium Home's money supply grows at 10% and Foreign's money supply grows at 5%. Assume that prices are perfectly flexible and output is constant in both countries. At what rate does Home's currency appreciate or depreciate? and what is the interest rate difference between the two countries