210653281_Exercise_set_1_Eco_442_2017-2_4149122254448385.pdf

210653281_Exercise_set_1_Eco_442_2017-2_4149122254448385.pdf...

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1. Consider the following data from the Congressional Budget Office which reports the US fiscal deficit as a percent of GDP, as well as total debt held by the public (i.e. all institutions and investors, except the US central bank, the Federal Reserve) also as a percent of GDP. A. Compute the amount of the fiscal deficit that was financed by new debt issue, and the amount that was financed by new seigniorage (the printing press), both as a percent of GDP in 2011 and 2012. Fill in the blanks above. B. Indicate your reasoning! The fiscal deficit is given by: U.S. Fiscal Deficit Debt held by the public Financed by new debt Financed by new seigniorage 2010 9.0 62.9 n.a.* n.a.* 2011 8.7 67.8 2012 7.0 72.5 * not available. Eco 442 International Monetary Economics Professor Michael Connolly Fall 2017 1
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2. Assume that country A has a gold window where its central bank freely sells and/or buys an ounce of gold for 40 dollars of currency while country B’s central bank freely sells and/or buys an ounce of gold for 10 pounds. There is no bid-ask spread in the central banks’ price of gold. a. Using the cross rate, indicate what is the equilibrium price of the pound in terms of the dollar. Explain your answer.
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