Question
Please help with a few macro economic questions Question 5: A chocolate eclair costs $2 (2 US dollars) in the US, and 3 (3 euros)
Please help with a few macro economic questions
Question 5: A chocolate eclair costs $2 (2 US dollars) in the US, and 3 (3 euros) in France.
a) What is the euro-dollar nominal exchange rate measured in terms of euros per dollar? *assume purchasing power parity holds
b) What is the real exchange rate?
c) Now, the Fed increases the money supply in the US, causing prices to double. Find the new nominal and real exchange rates.
Question 6: Suppose the government begins with a balanced budget. Then, the government has a budget deficit. What happens to the real interest rate, net capital outflows, the real exchange rate, and net exports as a result of this change? Use graphs of the loanable funds market, net capital outflow and real interest rate, and foreign-currency exchange market to explain your answers.
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