MACROECONOMICS-W/MINDTAP
15th Edition
ISBN: 9781305361409
Author: Gwartney
Publisher: CENGAGE L
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Question
Chapter 15, Problem 11CQ
(a)
To determine
Identify the Fed policy to promote economic stability.
(b)
To determine
Identify the impact of expansionary
(c)
To determine
Identify the effect of an expansionary policy on the nominal interest rate and general
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In this question, you will test relative purchasing parity (PPP) using the data. Use yearly
data from FRED website
from 1971 to 2020: (i) The Canadian Dollars to U.S. Dollar Spot
Exchange Rate (ER) (ii) Consumer price index for Canada (CAN_CPI), and (iii) Consumer price
index for the US (US_CPI). Inflation is measured by the consumer price index (CPI). The relative
PPP equation is:
AE CAN$/US$
ECAN$/US$
=
π CAN - πUS
Submit the Excel sheet that you worked on.
1. First, compute the percentage change in the exchange rate (left-hand side of the equation).
Caculate the variable for each year from 1972 to 2020 in Column E (named Change_ER) of
the Excel sheet. For example, for 1972, compute
E3: (B3-B2)/B2).
ER1972 ER1971
ER 1971
(in Excel, the formula in cell
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