Question
Suppose that you have the following information: The inflation rate in the US is 2% and -2% in Japan (deflation in Japan) The real exchange
- Suppose that you have the following information:
The inflation rate in the US is 2% and -2% in Japan (deflation in Japan)
The real exchange rate ($/yen) is appreciating by 2%.
- (10 points) What is the implied change in the nominal exchange rate ($/yen)? Please show work. Explain the intuition of your result.
2.(10 points) Suppose that Bank of Japan (BOJ) successfully rids the economy of deflation so that the new rate of inflation is 2%, same as the US.Assuming all else constant, what is the implication on the nominal exchange rate? Explain the intuition of your result.
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Managerial Economics and Business Strategy
Authors: Michael R. baye
7th Edition
978-0073375960, 71267441, 73375969, 978-0071267441
