Example 4.2 Suppose that the (gross) rate of return on fiat money in the United States (country a ) is 2.0 and that of Canada (country b ) is 1.0. The (gross) growth rate of the Canadian population ( n b ) is 1.2. Foreign exchange controls are in effect.

a. What is the time path of the exchange rate ( e_t+1 / e_t )?

b. Suppose that Canada wishes to maintain a fixed exchange rate with the United States.To accomplish this goal Canada must set its gross rate of fiat money creation ( z^b ) to what value?

Need explanation. And No hand Written.