2. Inflation in Brazil is 5% and in the US it is 2%. The GDP growth rate is 2% in both countries. The exchange rate is 7 Brazilian real (BRL) per USD. Use Brazil as the domestic country. a. If PPP is true, what will the BRL/USD exchange rate be next year? b. If PPP is true, what will happen to the real exchange rate? Explain with an equation. c. If the quantity theory of money is correct, how fast is the money supply growing in Brazil and the US?

2. Inflation in Brazil is 5% and in the US it is 2%. The GDP growth rate is 2% in both countries. The exchange rate is 7 Brazilian real (BRL) per USD. Use Brazil as the domestic country. a. If PPP is true, what will the BRL/USD exchange rate be next year? b. If PPP is true, what will happen to the real exchange rate? Explain with an equation. c. If the quantity theory of money is correct, how fast is the money supply growing in Brazil and the US?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 6PA

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