The depreciation of the dollar versus the yen

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Reference no: EM131112318

The depreciation of the dollar versus the yen: Look back at equation (20.3) in Section 20.2 E = P^w / P

a) Apply our growth rates rule (from Chapter3) to this equation to express the growth rate of the exchange rate as a function of the infaltion rate at home and abroad.

b) Between 1975 and 1995, U. infaltion averaged 5.7% per year, while inflation in Japan averaged 3.6% per year.

c) Using Figure 20.1, make a rough calculation fo the annual rate of depreciation of the dollar versus the yen. Do the numbers match up reasonably well?

d) What must have been ahppenign to real exhcnage rate between 1975 and 1995? Cna you think of any reason why this might have occured ?

Reference no: EM131112318

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