MGEC61H3 Study Guide - Midterm Guide: Money Market, Money Supply, Exchange Rate
23 May 2014
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Part (a) (15 points) 1 point will be subtracted for each incorrect entry. Part (b) (5 points) (3 pts for explanation) 1245: omega experience a depletion of foreign wealth (1 pt) by 1245 (1 pt) because omega is a net seller of assets. Question 2 (20 points) ( 2 pts from the whole question for not having 4 decimal points) Part (a) (4 points: expected exchange rate, ee: (2 pts 1 pt for showing work & 1 pt for the answer) Ee = p/p* = 3/4 = 0. 75: exchange rate, e: (2 pts 1 pt for showing work & 1 pt for the answer) (1. Part (b) (4 points: new expected exchange rate: ee = 0. 75 + 0. 0225 = 0. 7725 (1 pt, new level of money supply: ms = 1. 03(64800) = 66744 (1 pt, domestic interest rate, r: (1 pt) R = 0. 0168: exchange rate: (1 pt)
