Please help me with this question year's time?e. What is the expected rate of real depreciation for the United States (versus the UnitedKingdom)?f. What is the expected rate of nominal depreciation for the United States (versus the UnitedKingdom)?g. What do you predict will be the dollar price of one pound a year from now? 7. You are given the following information. The current dollar-pound exchange rate is $1.5 perpound. A U.S. basket that costs $100 would cost $120 in the United Kingdom. For the nextyear, the Federal Reserve is predicted to keep U.S. inflation at 2% and the Bank of Englandis predicted to keep U.K. inflation at 3%. The speed of convergence to absolute PPP is 15%per year.a. What is the expected U.S. minus U.K. inflation differential for the coming year?b. What is the current U.S. real exchange rate QUS/UK with the United Kingdom?c. How much is the dollar overvalued/undervalued?d. What do you predict the U.S. real exchange rate with the United Kingdom will be in one

a.Expected U.S. minus U.K. Inflation Differential for the Coming Year: The inflation differential…

Answered: year's time? e. What is the expected…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 4P

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Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
You are given the following information. The current dollar/euro exchange rate is 1.25 dollars per euro. A U.S. basket that costs $100 would cost 64 euro in the euro area. For the next year, the Fed is predicted to keep U.S. inflation at 3% and the ECB is predicted to keep euro area inflation at 1%. The speed of convergence to absolute PPP is 15% per year. e. What is the expected U.S. minus euro area inflation differential for the coming year? f. What is the expected rate of nominal depreciation for the United States (versus the euro)?
Assume that the Eurozone and the USA are the only economies in the world. In the last year, the REAL exchange rate from the point of view of the Eurozone (i.e. how many baskets of goods can be bought in the USA with the money need to buy one basket in the eurozone) has risen 4% and the nominal exchange rate (in terms of dollars per euro ) has decreased 1 %. Then: A. inflation in the Eurozone has been higher than in the USA. B. inflation in the eurozone has been the same one than in the USA C. the inflation in the eurozone was equal to 20% D. the inflation in USA was higher than the inflation in the eurozone.
With the strengthening of the yen against the U.S. dollar in 2010, Japan’s central bank did not take any action. A leading Japanese politician has called on the central bank to take actions to weaken the yen, saying it will help exporters in the short run and have no long-run effects. a. What is Japan’s current exchange rate policy b. What does the politician want the exchange rate policy to be in the short run? Why would such a policy have no effect on the exchange rate in the long run?
In 1990, the price level for the United States was 100, the price level for Pugelovia was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced “p’noot”) was equal to $1. In 2013, the U.S. price level had risen to 260, and the Pugelovian price level had risen to 390. a. According to PPP, what should the dollar–pnut exchange rate be in 2013? b. If the actual dollar–pnut exchange rate is $1/pnut in 2013, is the pnut overvalued or undervalued relative to PPP?
12. Use the Foreign Exchange market for British pounds to answer the following. Suppose that the British demand for US goods increases. The result is that: A) the demand for pounds increases. B) the demand for pounds decreases. C) the supply of pounds decreases. D) the supply of pounds increases. 13. Use the Foreign Exchange market for British pounds to answer the following. Suppose that the British demand for US goods decreases. The result under a flexible exchange rate regime is that: A) the demand for pounds increases. B) the demand for pounds decreases. C) the $/£ exchange rate decreases. D) the $/£ exchange rate increases.
1. What is the meaning of purchasing power parity? 2. What is the difference between nominal exchange rate and real exchange rate? What is another example of this nominal vs. real dichotomy in economics? 3. What is the relationship between money supply growth, GDP growth, and inflation based on the quantity theory of money? 4. What is real interest parity? 5. How does a fixed exchange rate act as a nominal anchor to potentially help control a country's rate of inflation?
Assume that Canada and the United States frequently trade with each other. Under the freely floating exchange rate system, low inflation in the U.S. will place ____ pressure on Canadian dollars (versus U.S. dollars), ____ the amount of Canadian dollars available for sale, and result in ____ inflation in Canada. a) upward; reduce; unchanged b) upward; increase; lower c) downward; reduce; lower d) downward; increase; unchanged e) None of the above

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