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the price levels in the U.S. and Europe a year from now? b. What will the real exchange rate be a year from now? c. Given your answers to part a and h, what will he the nominal
exchange rate {Ewe} a year from now? 6. Assume that output growth in the U.S. is 2%, money demand {L}
is constant and money supply growth is 4%.
a. What is inflation in the U.S. assuming the quantity theory of money?
b. Assume that output growth in China is T%, L is constant and
money supply growth is lflt. What is the growth rate of the dollar—China exchange rate {%flEwmom}?
c. What should money supply growth be in China if China wants to
fix its currency to the dollar? T. Assume that a basket of goods that costs $19D in the U.S.
costs 12,DDG rupees in India. The exchange rate is 55 rupees per
dollar. a. Calculate the India—U.S. real exchange rate, assuming that
India is the home country {calculate (qmmomsj b. Assuming that PPP holds in the long run, do you expect the
rupee to appreciate or depreciate against the dollar in the
future?

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