Write an equation expressing interest rate, Physics

Assignment Help:

Q. Assume an economy is in a liquidity trap.

A. Write an equation expressing interest rate parity under a fixed exchange rate regime.

Answer: Liquidity trap entail R = 0.  R = 0 = R* + (Ee - E)/E.

B. Assume Ee is fixed.  Suppose that the central bank raises the domestic money supply so as to depreciate the currency temporarily (that is, to raise E currently but return the rate to Ee later).  Show that E cannot be raised.

Answer:  Ever since R = 0 the equation in part A the interest parity condition implies E = Ee / (1- R*) as Ee and R* are fixed E can't change.


Related Discussions:- Write an equation expressing interest rate

Free fall , wrench from the top of an 80 m high tower what is the velocity ...

wrench from the top of an 80 m high tower what is the velocity of the wrench when it strikes the ground?

What are newton s laws of motion, What are Newton s laws of motion? 1. ...

What are Newton s laws of motion? 1. A body at rest will stay at rest and one in motion will stay in motion, unless and unless acted upon by an external force. (Law of inertia)

Magnetism, how to perform experiment of deflection magnetometer,its concept...

how to perform experiment of deflection magnetometer,its concepts

Galvanometer, With the help of neat & labelled diagram. Explain the princip...

With the help of neat & labelled diagram. Explain the principle & working of a moving coil galvanometer. What is importance of radial magnetic field.

How can newton rings determine refractive index of liquid, How can Newton r...

How can Newton rings experiment be used to determine refractive index of liquid? The experimental arrangement for Newton's rings set up is made with the plane convex lens pla

Determine the gauss law of magnetism, Gauss' law of magnetism, Gauss' law o...

Gauss' law of magnetism, Gauss' law of electricity,Faraday's law of induction, and Amperes' law form the basic equations of electromagnetism.  This combination is collectively

Explain about refracting telescopes, Refracting telescopes, if uncorrected,...

Refracting telescopes, if uncorrected, suffer from chromatic aberration.  Chromatic aberration occurs because: a)  red light is focused more strongly than blue light b)

Determine the force acting through the bolts of the flange, This spray head...

This spray head discharges water (density 62.4 lbm/ft ) at a rate of 4 ft /s. Assuming irrotational flow and an efflux speed of 65 ft/s in the free jet, determine what force acting

What is a light guide, What is a light Guide? While a number of single ...

What is a light Guide? While a number of single fibers are grouped together to create a larger diameter light conductor the resulting structure is termed as a light guide. Occa

Sound, experiments on how sound waves travel faster in iron

experiments on how sound waves travel faster in iron

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd