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Consider the following version of the short run monetary model: MD/P = exp(-0.50*i)*Y (UK) MS = M i=L(US) + ene-e where M= 1100, Y = 1,956, P=1, i_{US), = 0.04 and ee =1.1 The UK money supply is unexpectedly increased from M-1100 to M1,197 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?

Consider the following version of the short run monetary model: MD/P = exp(-0.50*i)*Y (UK) MS = M i=L(US) + ene-e where M= 1100, Y = 1,956, P=1, i_{US), = 0.04 and ee =1.1 The UK money supply is unexpectedly increased from M-1100 to M1,197 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?

Macroeconomics: Private and Public Choice (MindTap Course List)
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter14: Modern Macroeconomics And Monetary Policy
Section: Chapter Questions
Problem 4CQ
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Consider the following version of the short run monetary model: MD/P = exp(-0.50*)*Y MS = M i=i (US) + ene - e where M = 1100, Y = 1,956, P-1, i (US) 0.04 and e^e = 1.1. The UK money supply is unexpectedly increased from M=1100 to M'=1,197 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. (UK)
Transcribed Image Text:Consider the following version of the short run monetary model: MD/P = exp(-0.50*)*Y MS = M i=i (US) + ene - e where M = 1100, Y = 1,956, P-1, i (US) 0.04 and e^e = 1.1. The UK money supply is unexpectedly increased from M=1100 to M'=1,197 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. (UK)
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