RQ_Solution_%28Ch_15%29

RQ_Solution_%28Ch_15%29 - ECMC61 Chapter 15 Review...

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Question 1: Chapter 15, Problems #1 RPPP: E E E * π π e - + = Let the Swiss franc be domestic currency and the Russian ruble be foreign currency. Given π = 5% and π * = 100%, RPPP: E E E 100% 5% e - + = 95% - 100% - 5% E E E e = = - . The Swiss franc is expected to appreciate against the Russian ruble at a rate of 95% over the year. Question 2: Chapter 15, Problems #3 Part (a) Suppose the overall level of spending doesn’t change, but domestic residents decide to spend more of their income on nontraded products and less on tradables: The relative demand for domestic products rises since domestic residents purchase more domestic goods than before. When the relative demand for domestic goods , domestic goods become more valuable purchasing power of domestic currency . As a result, domestic currency appreciates in real terms, q . Part (b) Suppose foreign residents shift their demand away from their own goods and towards the home country’s goods: The relative demand for domestic products rises (the demand for domestic goods increases and/or the demand for foreign goods decreases). When the relative demand for domestic goods , domestic goods become more valuable purchasing power of domestic currency . As a result,
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RQ_Solution_%28Ch_15%29 - ECMC61 Chapter 15 Review...

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