For the following questions assume that the Fed is committed to price level stability. Initially, the exchange rate is 1.0. The US interest rate starts at 0.15 and the Fed increases the money supply by twenty percent (0.2) reducing the interest rate to 0.01. Assume that the economy completely adjusts after two years. Two years from now, the exchange rate is. 1.2 0.80 1.0 1.10 What is the change in the price level over the next two years 0.20 0.10 0.0 -0.10 Starting from today, what is the change in the interest rate over the next two years -0.10 0.00 0.14 0.10
For the following questions assume that the Fed is committed to price level stability. Initially, the exchange rate is 1.0. The US interest rate starts at 0.15 and the Fed increases the money supply by twenty percent (0.2) reducing the interest rate to 0.01. Assume that the economy completely adjusts after two years. Two years from now, the exchange rate is. 1.2 0.80 1.0 1.10 What is the change in the price level over the next two years 0.20 0.10 0.0 -0.10 Starting from today, what is the change in the interest rate over the next two years -0.10 0.00 0.14 0.10
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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For the following questions assume that the Fed is committed to price level stability. Initially, the exchange rate is 1.0. The US interest rate starts at 0.15 and the Fed increases the money supply by twenty percent (0.2) reducing the interest rate to 0.01. Assume that the economy completely adjusts after two years. Two years from now, the exchange rate is.
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1.2 |
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0.80 |
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1.0 |
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1.10 |
What is the change in the price level over the next two years
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0.20 |
||
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0.10 |
||
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0.0 |
||
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-0.10 |
Starting from today, what is the change in the interest rate over the next two years
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-0.10 |
||
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0.00 |
||
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0.14 |
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0.10 |
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