ECON: MACRO4
4th Edition
ISBN: 9781305436862
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 2.3PA
Sub-part
A
To determine
Effect on aggregate
Sub-Part
B
To determine
Effect on aggregate demand when the marginal propensity to consume rises.
Sub-Part
C
To determine
Effect on aggregate demand when the money multiplier rises.
Sub-Part
D
To determine
Effect on aggregate demand when bank decides to hold additional
Sub-Part
E
To determine
Effect on aggregate demand when the demand for money becomes more sensitive to the changes in the interest rate.
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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
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1. First, compute the percentage change in the exchange rate (left-hand side of the equation).
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E3: (B3-B2)/B2).
ER1972 ER1971
ER 1971
(in Excel, the formula in cell
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