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Consider the following version of the short run monetary model: (UK) MD/P = exp(-0.50*i)*Y MS = M i=i_(US) + e^e-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?

Consider the following version of the short run monetary model: (UK) MD/P = exp(-0.50*i)*Y MS = M i=i_(US) + e^e-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?

Macroeconomics: Principles and Policy (MindTap Course List)
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter15: The Debate Over Monetary And Fiscal Policy
Section: Chapter Questions
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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) + e^e-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.
Transcribed Image Text:Consider the following version of the short run monetary model: MD/P exp(-0.50*i)*Y (UK) MS = M i=L(US) + e^e-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.
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