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Drastic decline in money-supply growth

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Part I. The data shown below are in per cent per annum terms for the United Kingdom over the period 1975 to 1989. Use them to answer the following questions.

(1) Use the quantity equation to explain the pattern of inflation.

(2) What happened to real income growth and velocity growth in these two time periods? Are their time patterns consistent with theory?

(3) What happened to real interest rates in the two time periods and is this consistent with theory?

(4) German money growrh averaged 3.0% in 1975-79 and2.8% in 1980-89. Given those data and the data for money growth in the UK, what do you think happened to the German mark vs. UK exchange rate in the two periods? Explain your reasoning.

(5) What do you think happened to real income in the immediate aftermath of the drastic decline in money-supply growth.

Part II. The data in the table and plotted in the chart below are for government bond yields in October 3, 2021. Use these data to answer the following questions.

1. What do these yield curves suggest about market expectations with regard to the behavior of 3-month interest rates in Brazil and the United States over time? Briefly explain your answer.

2. What do these yield curves suggest about market expectations with regard to the behavior of the Brazilian Real to US Dollar exchange rate over time? Again, briefly explain your answer

Reference no: EM133273969

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