Compute the interest rate paid on korean deposits

Assignment Help International Economics

Reference no: EM131479900

Question: This question uses the general monetary model, where L is no longer assumed constant, and money demand is inversely related to the nominal interest rate. Consider the same scenario described at the beginning of the previous question. In addition, the bank deposits in Japan pay a 3% interest rate, i ¥ = 3%.

a. Compute the interest rate paid on Korean deposits.

b. Using the definition of the real interest rate (nominal interest rate adjusted for inflation), show that the real interest rate in Korea is equal to the real interest rate in Japan. (Note that the inflation rates you computed in the previous question will be the same in this question.)

c. Suppose the Bank of Korea increases the money growth rate from 12% to 15% and the inflation rate rises proportionately (one for one) with this increase. If the nominal interest rate in Japan remains unchanged, what happens to the interest rate paid on Korean deposits?

d. Using time series diagrams, illustrate how this increase in the money growth rate affects the money supply MK; Korea's interest rate; prices PK; real money supply; and Ewon/¥ over time. (Plot each variable on the vertical axis and time on the horizontal axis.)

Reference no: EM131479900

Questions Cloud

Define the transactions costs and nontraded goods : Describe how each of the following factors might explain why PPP is a better guide for exchange rate movements in the long run versus the short run.

What is the inflation rate in korea : Consider two countries: Japan and Korea. In 1996 Japan experienced relatively slow output growth (1%), while Korea had relatively robust output growth (6%).

Prepare a plan in which you would mitigate the vulnerability : "Security Administration and Access Control"- Summarize the ethical dilemma, and develop a plan in which you would mitigate the vulnerability.

Describe the various stages of your project : How important it is access to credit and other financial services to growth and investment? Describe what you will achieve during the first year

Compute the interest rate paid on korean deposits : This question uses the general monetary model, where L is no longer assumed constant, and money demand is inversely related to the nominal interest rate.

Worked with an ineffective leader : Reflect upon a time when you worked with an ineffective leader? What made this person unsuccessful?

Manager of a competing pizza restaurant nearby : Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were:

Define the monetary model : Both advanced economics and developing countries have experienced a decrease in inflation since the 1980s (see Table in the text).

Describe general security architecture for the company : The security design must ensure: Describe general security architecture for the company. Develop a list of 12specific security policies that could be applied.

User Account

All Pages