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that's all the question f. Home is pegging to the euro. The euro interest rate is 2%. Investors are risk neutral and think the peg

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that's all the question

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f. Home is pegging to the euro. The euro interest rate is 2%. Investors are risk neutral and think the peg is credible and the expected depreciation is zero. The home interest rate in this situation must be: g. Home is pegging to the euro as in part f. The euro interest rate is still 2%. Investors are risk neutral and now think the peg is not credible. They think with a 50% probability the home currency will depreciate 10% in the coming year. The home interest rate in this situation must be: h. In which of the last two scenarios is output lower in the home country, all else equal? And how does this help explain the logic of self-fulfilling currency crises? (explain briefly)? i. A small open economy has been stable with output Q and consumption Cequal to 1000 for all past history. Now they learn that each year with probability 10% there will be climate disaster that costs 50 units of output each time. How should they adjust? (circle correct answer) consume as before / consume more & save less / consume less & save more j. What is the intuition for your answer to the last question? (explain briefly)

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