international economic

posted by .

2.) This question uses the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. Consider the same scenario described in the beginning of the previous question. In addition, the bank deposits in Japan pay 3% interest; i¥ = 3%.
a.) Calculate the interest rate paid on Korean deposits.
b.) Using the definition of the real interest rate (nominal interest rate adjusted for
inflation), show that the real interest rate in Korea is equal to the real interest rate in Japan. (Note that the inflation rates you calculated in the previous question will apply here.)
c.) Suppose the Bank of Korea increases the money growth rate from 12% to 15% and the inflation rate rises proportionately (one for one) with this increase. If the nominal interest rate in Japan remains unchanged, what happens to the interest rate paid on Korean deposits?
d.) Using time series diagrams, illustrate how this increase in the money growth rate affects the money supply, MK; Korea’s interest rate; prices, PK; real money supply; and Ewon/¥ over time. (Plot each variable on the vertical axis and time on the horizontal axis.)

  • international economic -

    a. o,5
    b. both 3%
    c.interest on Korean deposits will go down
    d.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Economics

    If the velocity of circulation is constant, real GDP is growing at 3 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 7 percent a year. a)What is the inflation rate?
  2. macroeconomics

    The interest rate were zero under the old government.The GDP is $700 and at that time people kept a total of $120 in cash stored as well as %50 worth of bonds. However, under new government the interest rate has risen to 36%. On average, …
  3. Economics

    In the Monetary policy transmission mechanism, explain what could go wrong between the following points 1. Change in the monetary policy and Change in the money supply 2. Change in the money supply and Change in the aggregate demand …
  4. Economics

    I need help on some T/F questions. 1. A decrease in the foreign interest rate results in a shift to the left by the IS curve. 2. Home's trade balance surplus must increase as a result of a decrease in Home's interest rate. 3. Since …
  5. Macroeconomics

    The “Great Moderation” since 1985 could be due either to smaller demand stocks when compared to the period prior to 1985 or to a better response by monetary policymakers since 1985 to the same demand shocks that occurred prior …
  6. macroeconomics

    100. The liquidity trap occurs when ______. (Points: 3) there is a large reduction in the demand for loanable funds the nominal interest rate falls to zero monetary policy becomes ineffective All of the above are correct.
  7. Macroeconomics

    The effectiveness of monetary policy depends on how easy it is for changes in the money supply to change interest rates. By changing interest rates, monetary policy affects investment spending and the aggregate demand curve. The economies …
  8. Compound Interest

    Swan Furnace Cleaners wants to add 0.50% to the effective rate of interest on its credit card. If it currently charges a nominal rate of 4.25% compounded semi-annually, at what value should it set the new nominal rate?
  9. Economics

    Consider an economy with a constant nominal money supply, a constant level of real output Y = 100, and a constant real interest rate, r = 0.10. Suppose that the income elasticity of demand is 0.5 and the interest elasticity of money …
  10. AP Macroeconomics

    3. You buy a certificate of deposit (CD) that pays a nominal rate of 12% annually. You have a tax rate of 25%, so if the interest on this CD is taxable (which it may not be) your after-tax nominal rate is (1 ñ 25%) • 12% = 9%. Since …

More Similar Questions