Fixed exchange rate-has real growth rate

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Suppose the Canadian economy, on a fixed exchange rate, has a real growth rate of 2% and is in equilibrium with an inflation rate of 10% and a risk premium of 1%. Suppose changes in the U.S. cause its real rate of interest to increase from 3% to 4% and its inflation rate to incresase by 3 percentage points. When the Canadian economy has settled to a new equilibrium after this change, what is its nominal interest rate?

Reference no: EM13860822

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