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Use the money market with the general monetary model, and the foreign exchange (FX) market to answer the question. The question considers the relationship between

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Use the money market with the general monetary model, and the foreign exchange (FX) market to answer the question. The question considers the relationship between the Australian dollar ($) and the U.K. British pound (pound). In Australia, the real income Y($) is 10.0 trillion, the money supply M($) is $20.0 trillion, the price level P($) is $4.0, and the nominal interest rate i($) is 5.0% per annum. In the U.K., the real income Y (pound) is 20.0 trillion, the money supply M(pound) is 20.0 trillion pounds, the price level P (pound) is 2.0 pounds, and the nominal interest rate i(pound) is 5.0% per annum. These two countries have maintained these long-run levels. Thus, the nominal exchange rate E($/pound) has been 2.00. Note that the uncovered interest parity (UIP) holds all the time and the purchasing power parity (PPP) holds only in the long run. Assume that the new long-run levels are achieved in 1 year from any permanent changes in the economies. Now, today at time T,therealincome of Australia, Y(S), fell to 9.90 trillion, by 1.0%, permanently. With the decrease in the real income in Australia, the Australian interest rate fell to 4.0% per annum today. Assume that Y(pound), M(\$), and M(pound) do not change at all. Using the exact questions of the money market equilibrium condition. the uncovered interest parity and the purchasing power parity, calculate the exchange rate, E($/pound) (rounding to 2 decimal places), today right after the decrease of the real income in Australia. Show all working to get full marks. Use the money market with the general monetary model, and the foreign exchange (FX) market to answer the question. The question considers the relationship between the Australian dollar ($) and the U.K. British pound (pound). In Australia, the real income Y($) is 10.0 trillion, the money supply M($) is $20.0 trillion, the price level P($) is $4.0, and the nominal interest rate i($) is 5.0% per annum. In the U.K., the real income Y (pound) is 20.0 trillion, the money supply M(pound) is 20.0 trillion pounds, the price level P (pound) is 2.0 pounds, and the nominal interest rate i(pound) is 5.0% per annum. These two countries have maintained these long-run levels. Thus, the nominal exchange rate E($/pound) has been 2.00. Note that the uncovered interest parity (UIP) holds all the time and the purchasing power parity (PPP) holds only in the long run. Assume that the new long-run levels are achieved in 1 year from any permanent changes in the economies. Now, today at time T,therealincome of Australia, Y(S), fell to 9.90 trillion, by 1.0%, permanently. With the decrease in the real income in Australia, the Australian interest rate fell to 4.0% per annum today. Assume that Y(pound), M(\$), and M(pound) do not change at all. Using the exact questions of the money market equilibrium condition. the uncovered interest parity and the purchasing power parity, calculate the exchange rate, E($/pound) (rounding to 2 decimal places), today right after the decrease of the real income in Australia. Show all working to get full marks

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