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The country Neptune has a GDP of $1 Trillion (i.e., $1,000 Billion) and a Monetary Base of $100 Billion. For a very long time, both
The country Neptune has a GDP of $1 Trillion (i.e., $1,000 Billion) and a Monetary Base of $100 Billion. For a very long time, both GDP and the Monetary Base have been constant, and inflation has been 0. At time it is announced that Neptune's fiscal deficit will increase from $0 to $50 Billion starting at t 1, and afterward increase by 10% per year for the foreseeable future. It is expected that the public will not purchase government bonds. a. What should be the average level of expected inflation over the next 10 years in Neptune? b. If no shock is expected to occur in other countries, what should happen to Neptune's nominal exchange over the next 10 years
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