Let’s define the exchange rate as US dollar against Euro ($/euro). If Europe
has a real GDP growth rate of 3%, and the United States has a real GDP growth rate of 2%,
while money growth in Europe is 7%, and money growth in the United States is 4%.
a. What would the long run monetary exchange rate model predict for the rate of depreciation
of US dollar in the future? (You need to write down the equation of rate of depreciation of US
dollar based on the monetary exchange rate model, and then calculate results.)
b. Does US dollar appreciate or depreciate against euro based on your results?
has a real GDP growth rate of 3%, and the United States has a real GDP growth rate of 2%,
while money growth in Europe is 7%, and money growth in the United States is 4%.
a. What would the long run monetary exchange rate model predict for the rate of depreciation
of US dollar in the future? (You need to write down the equation of rate of depreciation of US
dollar based on the monetary exchange rate model, and then calculate results.)
b. Does US dollar appreciate or depreciate against euro based on your results?
