What money growth rate should it keep to implement policy

Reference no: EM13198902

Suppose the real GDP in Canada is growing at a rate of 6% per year, while in the UK it is growing at 5% per year. The Bank of Canada allows the country's money supply to grow 10% per year, while the Bank of England allows the money supply to grow 12% per year. Use the simple monitary model (where L is constant) to answer this:

The inflation rate in Canada is________% the inflation rate in the UK is_____%, and the expected rate of depreciation of the Canadian dollar against the Brithis pound is ____%

Suppose that the Bank of Canada decreses the money growth rate, and now it is 8% per year. The money growth rate in the UK does not change. As a result, the inflation rate in Canada will be ______% per year, and the Canadian dollar will___________against the Brithsh pound at ______%per year.

Suppose now that the Bank of Canada wants to maintain the current exchange rate of the Canadian dollar with the British pound. What money growth rate should it keep to implement this policy?

Suppose the Bank of Canada wants to implement a policy that would cause the Canadian dollar to depreciate against the British pound. Which of the following money growth rates will achieve this objective?

Reference no: EM13198902

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