What mix of central bank bond purchases also higher

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Reference no: EM1319504

Q. Elucidate clearly the rationale behind your numerical answers.

a. Assume the impact on the interest rate of a $3 rise in government spending can be eliminated by a $1 rise in the money supply. If the income multiplier with respect to government spending is 4 the money multiplier is 5 also the income multiplier with respect to the money supply is 3 Illustrate what mix of central bank bond purchases also higher government spending is required to rise income by $6,000 without changing the interest rate?

b. Assume Canada also the U.S. are in equilibrium with a flexible exchange rate also a risk premium of 1%. (Canada is riskier). The real rates of growth in Canada also in the U.S are both 3%, but the U.S. interest is 7% also the Canadian interest rate is 10%. Illustrate what is happening to the Canada/U.S. exchange rate?

c. Assume the typical basket of goods also services consists of 10kg of meat at $3 per kg also 50 bus tickets at $2 per ticket.

i.) If both prices rise by fifty cents during the year illustrate what is the CPI for next year if this year is the base year?

ii.) If the present exchange rate is 0.4 pounds sterling per Canadian dollar ($C) also the present prices in Britain are 1 pound sterling per kg of meat also one pound sterling per bus ticket Illustrate what is the this year's PPP exchange rate among the pound sterling also the Canadian dollar ($C)?

Reference no: EM1319504

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