MGEC61H3 Lecture Notes - Argentine Peso, Brazilian Real, Money Supply

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Chapter 15 money, interest rates, and exchange rates. Compare to a temporary increase in real money demand, there will be a larger appreciation of domestic currency in the short run when the real money demand increases permanently. Argentine peso (peso) and the brazilian real (real) is given by the asset approach to the exchange rate. The level of money supply and the (real) money demand for both countries are: Note: ri = nominal interest rate for country i, where i = argentina or brazil. Quote the exchange rate as epeso/real, and interest rates are expressed in decimal points (i. e. , if r = In your written explanation, use the subscripts a and b to denote all variables and terms used for argentina and brazil respectively. Keep your answer in 4 decimal points if necessary. Initially, both argentina and brazil are in their long-run equilibrium. The long-run levels of output in argentina and brazil are 6000 and 4500 respectively.

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