Answered: (a) The interest rate in the UK is 8%.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(a) The interest rate in the UK is 8%. The inflation rate in the US is 3% and in the UK 5%. Use the Fisher effect to find the US interest rate. Answer 6%

(b) The exchange rate of the British pound is 1.25. The price level in the US is 300. The real money demand in the UK is 3. Assume that the PPP holds. Find the nominal money supply in the UK. Answer: 720

(c) The US economy grows at a 2% interest rate. The US is growing its nominal money supply at 6% interest rate. In Europe, the inflation rate is 3%. Find the expected rate of appreciation of the euro.

Answer:0.01

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