Apply the monetarist model of exchange rate and assume that a = 0.5 and 3 = 0.6. Explain how the $/EUR ratio will evolve once there is an increase in nominal money supply by 10% in Canibalia and by 5% in Spain, while GDP grows at 2% per year and 3% per year respectively (ceteris paribus). What should be the growth rate of national money supply if we want the nominal exchange rate to be constant? a. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 5.5% b. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 4.5% c. Nominal exchange rate $/EUR will increase by 4.5%

Apply the monetarist model of exchange rate and assume that a = 0.5 and 3 = 0.6. Explain how the $/EUR ratio will evolve once there is an increase in nominal money supply by 10% in Canibalia and by 5% in Spain, while GDP grows at 2% per year and 3% per year respectively (ceteris paribus). What should be the growth rate of national money supply if we want the nominal exchange rate to be constant? a. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 5.5% b. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 4.5% c. Nominal exchange rate $/EUR will increase by 4.5%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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