<p>but because the euro appreciates, its already going through higher domestic inflation, so it will be importing more than its exporting.</p>
<p>the u.s will be exporting more than importing, plus will get the investment of foreigners because it has a lower relative price per dollar</p>
<p>Anyone have Form E?</p>
<p>What did people get for the change in nominal and real interest rate in the last problem? I took so long with that.</p>
<p>^both increased</p>
<p>why would the real interest rate change?</p>
<p>I got that the real interest stayed the same</p>
<p>[Effects</a> of Anticipated Inflation: The Fisher Equation](<a href=“http://www.economics.utoronto.ca/jfloyd/modules/ainf.html]Effects”>Effects of Anticipated Inflation: The Fisher Equation)</p>
<p>‘A higher rate of inflation than expected lowers the realized real real interest rate below the contracted real interest rate. The lender loses and the borrower gains. A lower rate of inflation than expected raises the realized real interest rate above the contracted real interest rate. The borrower loses and the lender gains.’</p>
<p>The question was about anticipated inflation though, not actual inflation.</p>
<p>inflation is ALWAYS anticipated; the question was about an /increased/ rate of inflation, as in higher inflation than expected</p>
<p>the quote above is about unanticipated inflation because the nominal rate = the expected rate on inflation + the real rate. If there is unanticipated inflation, it is inflation not factored into the nominal rate. The question did not say there is increased inflation, it said there was the expectation of increased inflation.</p>
<p>I thought the test was pretty easy. The one thing that was confusing for me was the last question. It said that sandy deposited $10,000 into a bank with a reserve ratio of .2, how much is the maximum amount of money that the bank can loaned out because of this.
A. 2000
B. 8000
C.40,000
D. 50,000
E. 60,000</p>
<p>I wasn’t quite sure of wheither it was 8000 or 40,000. The way they worded it, I wasn’t sure if they meant because of this 10,000; the bank is able to loan out 40,000 or just that deposit. Any thoughts?</p>
<p>I said 40,000.</p>
<p>It is B 8000.</p>
<p>They definitely did not say loan out they said how much can they increase the money supply.</p>
<p>Real interest rate stayed the same, but nominal increased.</p>
<p>Euro appreciated, and the current account balance for the US became a surplus.</p>
<p>@CantConcentrate: Ditto. =P
Any anticipated inflation is accounted for in the nominal interest rate. If you’re shooting for a real interest rate of 5%, then you increase the nominal so that, with inflation, it comes out to 5%. The real doesn’t change either because people still demand money the same and the money supply is the same.
And since the Euro appreciates, Europe would go into a deficit, so it’s basically just the opposite for the US.</p>
<p>@kevin123456: It’s $40,000. They can loan out $8,000 which gets multiplied.</p>
<p>I’m just saying, I’m glad they didn’t make us justify anything on FRQ 3. I would have had to BS… a lot.</p>
<p>I think I actually got the Phillips curve question right. It shifts up because of expected inflation, and the long-run Phillips curve is unaffected; you just most along the curve.
And we’ve discussed the rest of the question already. I think.</p>
<p>How bout the mult choice that showed a recessionary gap and it asked how to achieve full employment?</p>
<p>Any expansionary policy would work. I forget the question, but anything with the following is right: