MGEC61H3 Midterm: MGEC61_Midterm_Answer_Key 2015 winter.pdf
24 Feb 2015
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Question 1 (20 points) 1 point will be subtracted for each incorrect entry. Question 2 (20 points) ( 2 pts from the whole question for not having 4 decimal points) Expected exchange rate, ee: (2 pts 1 pt for showing work & 1 pt for the answer) New expected exchange rate: ee = 1. 28 (1 pt) Domestic price level, p: (2 pts 1 pt for showing work & 1 pt for the answer) = 0. 165(54000) 15000(0. 06) p = 3. 8427. Exchange rate, e: (2 pts 1 pt for showing work & 1 pt for the answer) The level of r* that keeps e at 1. 2: (3 pts) Alternatively, the level of r* that keeps e at 1. 2: (3 pts) Since r* cannot be negative (3 pts), so the central bank of foreign cannot bring e back to its initial long-run level. (2 pts) Ee*r 1 r) (1e 1 1. 282. 10. 024 1 eee*re 1. 21. 2 1. 28 question 3 (20 points)
