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

Newton''s rings, why we take large radius of curvature of lens

why we take large radius of curvature of lens

Electrostatics, The neutral point in an electrostatic field appears to have...

The neutral point in an electrostatic field appears to have a resultant potential. why is this so?

How the angle of the sun''s rays changes, Demonstrating how the angle of th...

Demonstrating how the angle of the sun's rays changes from day to day at the same hour Cut a 1-cm round hole in a piece of paper or cardboard. Place this in a south window of y

Determine the inside plate temperature, A carbon steel plate (thermal condu...

A carbon steel plate (thermal conductivity = 45 W/m o C) (600 x 900 x 25) mm 2 is maintained at 310 o C. Air at 15 o C bellows over the hot plate. If convection heat transfer co-e

What do you understand by absorption coefficient, What do you understand by...

What do you understand by "Absorption coefficient"? which is a better absorber of sound, glass or fibre glass?

Describe critical angle, With a neat and clean diagram illustrate in brief ...

With a neat and clean diagram illustrate in brief the TIR. Describe critical angle and mention the two conditions for TIR.

Imp, o meteors of rest-mass 0.1 and 0.2 kg, respectively, collide. If the r...

o meteors of rest-mass 0.1 and 0.2 kg, respectively, collide. If the relative speed before collision is 0.1c and an observer sees them coming with an equal and opposite speed and s

State parallelogram law of forces, State parallelogram law of forces. P...

State parallelogram law of forces. Parallelogram Law can be assured as if two forces acting at a point are represented in magnitude and direction by the adjacent sides of a par

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