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Compute the inflation rate in hungary

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Hungary's money growth rate is currently 14% and output growth is 9%. Europe's money growth rate is 4% and its output growth is 2%. Also, the world real interest rate is 2%. Use the conditions associated with the simple monetary model (L = constant) to answer the questions below. Treat Hungary as the home country and define the exchange rate as Hungarian forint (Ft) per euro, E Ft/€

-Compute the inflation rate in Hungary.

-Compute the inflation rate in Europe.

-Compute the expected rate of depreciation of the forint versus the euro.

-Suppose the Hungarian National Bank decreases the money growth rate from 14% to 12%. If nothing in Europe changes, what is the new inflation rate in Hungary?

-Show how the policy change in part d at time T affects: money supply M HUN, real money balances M HUN/PHUN, price level P HUN, and exchange rate E Ft/€.

- Create 4 time series diagrams with time T in the middle that show the before and after growth rates for each variable above on the chart.

- The 4 time series graphs are labeled Home Money Supply, Home Real Money Balances, Home Price Level, and Home Exchange Rate with T(time of policy change) in the middle.

Reference no: EM132790060

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