Apply the monetarist model of exchange rate and assume that a = 0.5 and 3 = 0.6. Explain how the $/EUR ratio will evolve once there is an increase in nominal money supply by 10% in Canibalia and by 5% in Spain, while GDP grows at 2% per year and 3% per year respectively (ceteris paribus). What should be the growth rate of national money supply if we want the nominal exchange rate to be constant? a. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 5.5% b. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 4.5% c. Nominal exchange rate $/EUR will increase by 4.5%

Apply the monetarist model of exchange rate and assume that a = 0.5 and 3 = 0.6. Explain how the $/EUR ratio will evolve once there is an increase in nominal money supply by 10% in Canibalia and by 5% in Spain, while GDP grows at 2% per year and 3% per year respectively (ceteris paribus). What should be the growth rate of national money supply if we want the nominal exchange rate to be constant? a. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 5.5% b. If we want the nominal exchange rate to be constant then the growth rate of national money supply should equal 4.5% c. Nominal exchange rate $/EUR will increase by 4.5%

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 8DQ

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