QUESTION 10

1. Colombia is an economy in Latin America. It has a floating exchange rate. Assume that the demand for money is given by M = LPY where M is money, P is the price level, Y is real income and L is 0.10. If income for Colombia grows at five percent (0.05) and the money supply grows at the rate of ten percent (0.10). US inflation is zero. Calculate inflation for Colombia.

   		0.05
   		0.0
   		0.02
   		0.05

2. What is the change in Colombian exchange rate versus the US. Colombia is the home country.

   		0.02
   		-0.05
   		0.05
   		0.20

3. Assume that the US nominal interest rate is four percent (0.04). What is the interest rate in Colombia?

   		0.05
   		0.15
   		0.02
   		0.09

4. What is the real interest rate in Colombia.

   		0.04
   		0.02
   		0.05
   		0.10