Define the nominal interest rate. How is the nominal interest
related to the real interest rate? Why can we think of 1+ rt ,
where rt is the real interest rate, as the relative price of
consumption today in terms of consumption in the future?
(a) Define real interest rate. How is it related to nominal
interest rate?
(b) Suppose the expected annual inflation rate in the U.S. is
1.5% and current nominal interest rate is 2%, what is the
approximate real interest rate? What is the actual real interest
rate?
An exchange rate is currently $2.00. The volatility of the
exchange rate is 20% and interest rates in the two countries are
the same. Using the Black-Scholes model, estimate the probability
that the exchange rate in one year will be between $1.70 and
$2.30.
Show how growth rate of GDP per capita is related to the growth
rate of GDP per worker and growth rate of working-age fraction of
population. How does the effect of population redistribution reduce
the average growth rate of income in the world? Explain this
(composition effect) by providing examples.
Using IS and LM graphs, explain
PLEASE USE GRAPHS!!!!
Monetary policy which targets the interest rate
Monetary policy which targets the money supply
When each of the two targeting strategies are the most
effective in managing the business cycle
The nominal exchange rate is the nominal interest rate in one country divided by the nominal interest rate in the other country. the ratio of a foreign country's interest rate to the domestic interest rate. rate at which a person can trade the currency of one country for another. the real exchange rate minus the inflation rate.
Using demand and supply curves to show autonomous exchange rate
adjustment and exchange rate adjustment, compare the achievement of
the equilibrium in the foreign exchange market.
Using demand and supply curves to show autonomous exchange rate
adjustment and exchange rate adjustment, compare the achievement of
the equilibrium in the foreign exchange market.