The following Table describes the evolution of the domestic price level (P), the foreign price level...

 

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The following Table describes the evolution of the domestic price level (P), the foreign price level (P*) and the nominal exchange rate (E) for a hypothetical open economy, between 2011 and 2015. (a) Fill the Table by calculating in each year the domestic inflation rate (π), the foreign inflation rate (*) and the real exchange rate (e). (Express the inflation rates in percentage points, and approximate them to the integer number. For example, if you think the right answer is 1.3%, just write 1%. Approximate the real exchange rate to the third decimal point). Year 2011 2012 2013 2014 2015 P 100.0 103.0 106.1 109.3 112.6 p* 100.0 102.0 104.0 106.1 108.2 E 0.5 0.5 0.5 0.5 0.5 IT - + % = % + % + % TT* In this economy, the real exchange rate is price level. This means the price of domestic goods relative to foreign goods is demand for domestic goods. We can represent this as a + % = % = % + % + + the # + , because the domestic price level is increasing + the foreign + effect on : . This has a + curve of the domestic economy. + The following Table describes the evolution of the domestic price level (P), the foreign price level (P*) and the nominal exchange rate (E) for a hypothetical open economy, between 2011 and 2015. (a) Fill the Table by calculating in each year the domestic inflation rate (π), the foreign inflation rate (*) and the real exchange rate (e). (Express the inflation rates in percentage points, and approximate them to the integer number. For example, if you think the right answer is 1.3%, just write 1%. Approximate the real exchange rate to the third decimal point). Year 2011 2012 2013 2014 2015 P 100.0 103.0 106.1 109.3 112.6 p* 100.0 102.0 104.0 106.1 108.2 E 0.5 0.5 0.5 0.5 0.5 IT - + % = % + % + % TT* In this economy, the real exchange rate is price level. This means the price of domestic goods relative to foreign goods is demand for domestic goods. We can represent this as a + % = % = % + % + + the # + , because the domestic price level is increasing + the foreign + effect on : . This has a + curve of the domestic economy. +

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