Use the monetary model to estimate the exchange rate depreciation. Suppose that the home country is Costa Rica and the foreign country is Brazil.

1)Suppose that the Costa Rican money supply grows at the rate of 6 percent and the Brazilian money supply grows at the rate of 10 percent. What is the expected rate of depreciation in the Costa Rica colon?

2)Suppose that the Costa Rican money supply grows at the rate of 2 percent and the Brazilian money supply grows at the rate of 5 percent. Furthermore, the Costa Rican economy is growing at the rate of 4 percent and the Brazilian economy is growing at the rate of 2 percent. What is the expected depreciation of the Costa Rican colon?

3)Suppose inflation in Costa Rica is 7 percent and inflation in Brazil is 2 percent? What is the expected depreciation of the Costa Rican colon?

Answer rating: 100% (QA)

1 According to the monetary model the expected rate of depreciation of the ... View the full answer