2. Inflation in Brazil is 5% and in the US it is 2%. The GDP growth rate is 2% in both countries. The exchange rate is 7 Brazilian real (BRL) per USD. Use Brazil as the domestic country. a. If PPP is true, what will the BRL/USD exchange rate be next year? b. If PPP is true, what will happen to the real exchange rate? Explain with an equation. c. If the quantity theory of money is correct, how fast is the money supply growing in Brazil and the US?

2. Inflation in Brazil is 5% and in the US it is 2%. The GDP growth rate is 2% in both countries. The exchange rate is 7 Brazilian real (BRL) per USD. Use Brazil as the domestic country. a. If PPP is true, what will the BRL/USD exchange rate be next year? b. If PPP is true, what will happen to the real exchange rate? Explain with an equation. c. If the quantity theory of money is correct, how fast is the money supply growing in Brazil and the US?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter34: International Finance

Section: Chapter Questions

Problem 3QP

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2. Inflation in Brazil is 5% and in the US it is 2%. The GDP growth rate is 2% in both countries. The exchange rate is 7 Brazilian real (BRL) per USD. Use Brazil as the domestic country. a. If PPP is true, what will the BRL/USD exchange rate be next year? b. If PPP is true, what will happen to the real exchange rate? Explain with an equation. c. If the quantity theory of money is correct, how fast is the money supply growing in Brazil and the US?
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In the following problem, assume that the UK currency is the pound sterling (PST) and the currency in the rest of the Europe is the euro (EUR). a. Suppose that the PST appreciates relative to the EUR. For the following parts, you will not receive any credit without providing an explanation. In the UK: ‐ How would the import demand change? Why?
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