Consider the following version of the short run monetary model: MD/P = exp(-0.50*i)*Y (UK) MS = M i = i_{US} + e^e - e where M = 1100, Y = 1,506, P=1, i_{US} = 0.04 and e^e = 0.7 . The UK money supply is unexpectedly increased from M-1100 to M'=1,242 in period 0. It is then returned to its original value of 1100 from period 1 onwards, and investors know this. By how much will the Pound depreciate in period 0? State your answer in the same units as e and to 2 decimal places.
Consider the following version of the short run monetary model: MD/P = exp(-0.50*i)*Y (UK) MS = M i = i_{US} + e^e - e where M = 1100, Y = 1,506, P=1, i_{US} = 0.04 and e^e = 0.7 . The UK money supply is unexpectedly increased from M-1100 to M'=1,242 in period 0. It is then returned to its original value of 1100 from period 1 onwards, and investors know this. By how much will the Pound depreciate in period 0? State your answer in the same units as e and to 2 decimal places.
Chapter19: Money Creation
Section: Chapter Questions
Problem 12SQ
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Transcribed Image Text:Consider the following version of the short run monetary model:
MD/P = exp(-0.50*i)*Y
(UK)
MS = M
i = i_{US} + e^e - e
where M = 1100, Y = 1,506, P=1, i_{US} = 0.04 and e^e = 0.7 .
The UK money supply is unexpectedly increased from M=1100 to M'=1,242 in period 0. It is then returned to its original value of 1100
from period 1 onwards, and investors know this.
By how much will the Pound depreciate in period 0?
State your answer in the same units as e and to 2 decimal places.
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