A nation has a lower inflation rate than all growth

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Free-floating exchange rate

1. A country has a lower inflation rate than all growth. It has more rapid economic growth. The central bank does not intervene in the foreign exchange market. What can be said about each of the following (and why):
a. The exchange rate?
b. The current account balance?
c. The expected exchange rate?
d. The interest rate differential?
e. Interest rate parity?
f. Purchasing power parity?

2. The exporting country imposes a VER of 300 million bushels on its exports of soybeans.
a. What is the world price of soybeans now?
b. What is the revenue of soybean growers in the exporting country?
c. Which country gains from the VER?

 

Reference no: EM1334864

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