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Question 30 There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target = 0.03 while the central bank in country B has an annual inflation target T = 0.02. In the long run, we would expect the real exchange rate of country A to depreciate against country B at a rate of about 1% per year. True or False? Explain.

Question 30 There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target = 0.03 while the central bank in country B has an annual inflation target T = 0.02. In the long run, we would expect the real exchange rate of country A to depreciate against country B at a rate of about 1% per year. True or False? Explain.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter29: Exchange Rates And International Capital Flows
Section: Chapter Questions
Problem 30CTQ: Many developing countries, like Mexico, have moderate to high rates of inflation. At the same time,...
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D Question 30 There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target = 0.03 while the central bank in country B has an annual inflation target T = 0.02. In the long run, we would expect the real exchange rate of country A to depreciate against country B at a rate of about 1% per year. True or False? Explain.
Transcribed Image Text:D Question 30 There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target = 0.03 while the central bank in country B has an annual inflation target T = 0.02. In the long run, we would expect the real exchange rate of country A to depreciate against country B at a rate of about 1% per year. True or False? Explain.
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